Standard Bank Group Limited · JSE:SBK
Standard Bank — H1 2008 Earnings Presentation
35 slides from Standard Bank's earnings presentation, 2008
Slide 1: Financial results for the six months ended 30 June 2008
Financial results For the six months ended 30 June 2008 Financial highlights Jun change Jun 2008 % 2007 Headline earnings (Rm) 7 104 15 6 165 Headline EPS (HEPS) (cents) 481,8 7 451,1 Diluted HEPS (cents) 477,7 7 444,5 DPS (cents) 193,0 7 181,0 NAVPS (cents) 5 451 40 3 904 ROE (%) 19,8 24,4 Credit l
Slide 2: Group income statement highlights; Business unit review
Group income statement highlights Jun change Jun 2008 % 2007 Net interest income 14 497 40 10 366 Non-interest revenue 14 426 25 11 502 Credit impairment charges 4 497 113 2 109 Operating expenses 14 167 24 11 423 Banking activities – headline earnings 6 825 21 5 651 Liberty contribution – headline
Slide 3: Headline earnings contribution and growth; Loans and advances
Headline earnings contribution and growth by major business unit 100 (%) (%) earnings 80 CIB SA growth 60 CIB headline in groupEarnings 40 Rest of Africa PBB Rest of Africa 20 PBB SA group Headline 0 Liberty Life CIB Outside -20 Africa tochange -40 Contributionto -60 Contribution -80 -100 -50 -40 -3
Slide 4: Funding; Margin on interest earning assets
Funding Jun on Jun on SBSA funding mix Jun Jun Dec 2008 change change 19% Rbn % %* 29% PBB 354 19 15 3% Retail priced 163 17 14 3% Wholesale priced 191 21 16 Money market 35 56 50 13% Securitisation 19 4 (6) Intragroup from CIB 137 17 12 5% 28% CIB 432 27 27 Deposit and current Retail customers Secu
Slide 5: Non-interest revenue; Credit impairment charges
Non-interest revenue Jun change Jun 2008 % 2007 Net fee and commission revenue 8 297 21 6 841 Trading revenue 5 222 42 3 689 Other revenue 907 (7) 972 Banking and other 318 21 262 Realised Visa profit 123 – Property related revenue (27) (>100) 273 Insurance related revenue 493 13 437 Total non-inter
Slide 6: Credit impairment trends; Operating expenses
Credit impairment trends 2.0 25 21.6 19.5 20.1 1.6 17.9 17.9 20 1.60 15.6 15.8 14.5 13.8 15.0 14.8 1.2 1.27 13.2 1.27 15 11.3 10.6 11.2 1.07 1.06 1.02 0.8 0.94 10 0.86 0.74 0.71 0.78 0.56 0.60 0.4 5 0.40 0.35 0.0 0 % 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 HY08 % Credit
Slide 7: Net asset value movements; Group return on equity
Net asset value movements summarised Increase on Jun opening 2008 balance % Rbn Opening balance – 1 Jan 2008 58,4 Transactions with shareholders 22,1 12,9 Shares issued 27,4 16,0 Dividends paid (5,3) (3,1) Additional shareholder value 20,5 12,0 Headline earnings 12,2 7,1 Other earnings outside headl
Slide 8: Total capital adequacy ratio
Total capital adequacy ratio 16 1.2 (0.5) 14 14.4 (1.3) (0.2) 13.9 (0.5) 2.8 12 (0.7) (0.6) 11.3 (0.7) 10 8 Basel I Dec Risk- Equity Credit loss Intangible ProForma Risk- Issue of Profit for the Dividends Other Basel II Jun % 2007 w eighted reserves adjustments assets and Basel II Dec w eighted shar
Slide 9: Capital adequacy and ICBC capital usage
% yoy 0 4 8 12 16 20 Mar 02 Jun 02 Sep 02 Dec 02 Mar 03 Jun 03 Sep 03 Sim Tshabalala Dec 03 Fixed investment spending (RHS) Mar 04 Jun 04 Sep 04 Trading conditions in SA Dec 04 Mar 05 Jun 05 Sep 05 Dec 05 Spending by households Mar 06 Jun 06 Sep 06 Dec 06 Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 0 2 4 6 8
Slide 10: Trading conditions in SA
Home Loans – South Africa 50 14 40 12 30 10 20 8 10 6 0 4 -10 2 -20 0 % Mar 97 Mar 98 Mar 99 Mar 00 Mar 01 Mar 02 Mar 03 Mar 04 Mar 05 Mar 06 Mar 07 Mar 08 Sep 97 Sep 98 Sep 99 Sep 00 Sep 01 Sep 02 Sep 03 Sep 04 Sep 05 Sep 06 Sep 07 % yoy Residential building plans passed (3 quarter average) Mortgag
Slide 11: Home Loans – South Africa; Macro environment in SA
Regulatory interventions in SA: Competition Commission ● No reference to abuse of market power or collusion ● Recommendations are balanced – Take into account the needs of customers, shareholders and other stakeholders ● Anticipate that it will take some time to fully implement the proposals ● Disag
Slide 12: Regulatory interventions in SA: Competition Commission; Financial Sector Charter
Regulatory interventions in SA: Other pending legislation ● Other pending legislation – National Environmental Management Act • Waste Management Bill – Expropriation Bill – Companies Bill – Consumer Protection Bill – Competition Amendment Bill We expect the level of regulation to continue to increas
Slide 13: Regulatory interventions: Other pending legislation; Key highlights for SBSA
Abridged SBSA income statement Jun 2008 change Jun 2007 Rm % Rm Net interest income 10 116 28 7 896 Non-interest revenue 7 812 10 7 113 Credit impairment charges 3 953 112 1 862 Operating expenses 8 074 8 7 454 Headline earnings 4 376 6 4 138 ROE (%) 25,3 29,7 Credit loss ratio (%) 1,68 0,97 Cost-to
Slide 14: Abridged SBSA income statement and balance sheet
Lending products in SA Personal & Business Banking ● Home Loans – Median house price down 3% yoy in July – Value of new business registered down 28% – Reduced prepayments ● VAF – New passenger car sales down 19% ytd in July – Value of new loans in motor book down 32% – Motor: Non-motor split 49:51 (
Slide 15: Lending products in SA
Lending products in SA Credit risk ● Credit experience to date has been very different for CIB and PBB ● Credit risk remains high given macro conditions – Financial stress increasingly evident across corporate customer base in sectors impacted by the deteriorating economic environment ● 2008 outcome
Slide 16: Credit risk; Transaction products in SA
Transaction products and other services in SA Corporate & Investment Banking ● Transactional products experiencing slower growth in volumes – continue to generate attractively priced funding ● Continued growth in funds under custody ● Significant increase in fees generated throughout investment bank
Slide 17: Transaction products and services; Costs in SA
Outlook ● Need to be cautious ● But we are optimistic – Global financial crisis not at an end, but far advanced – Upturn in the SA business cycle in mid-2009 • Pending fall in inflation and policy relief • Good pipeline in our Investment Banking franchise – Investment trend to lock in higher secular
Slide 18: Outlook
PBB abridged income statement and key ratios Jun 2008 change Jun 2007 Rm % Rm Net interest income 9 355 34 6 973 Non-interest revenue 6 524 20 5 422 Total income 15 879 28 12 395 Credit impairment charges 4 012 110 1 913 Operating expenses 7 948 22 6 538 Normalised headline earnings 2 538 (3) 2 623
Slide 19: PBB abridged income statement; Net interest income and margin
Non-interest revenue ● Non-interest revenue up 20% – Net fee and commission revenue up 18% • Account transaction fees rose by 11% • Strong volume growth from expanded footprint • Card based fees up 19% with a large contribution from outside South Africa – Other non-interest revenue up 21% • Higher b
Slide 20: PBB non-interest revenue; Operating expenses
Credit impairments – a consequence of business strategy ● Deliberate decision in 2002 to rebuild domestic franchise and market shares to take advantage of a growing and transforming South African marketplace ● Segment and product specific long-term growth strategies successful – Significant increase
Slide 21: Credit impairments – a consequence of business strategy
PBB credit impairment charges by product Jun 2008 Jun 2007 Dec 2007 Rm Rm Rm Mortgage lending 1 518 551 1 056 Instalment sale and finance leases 669 387 909 Card products 1 108 606 1 480 Other loans and advances 717 369 795 Personal & Business Banking 4 012 1 913 4 240 41 PBB South Africa mortgage b
Slide 22: PBB credit impairment by product; Mortgage book maturing
PBB South Africa mortgage lending book Gross Current Early arrears Impaired advances (30-89 days) (90+days) 30 June 2008 Value (Rm) 228 881 212 555 6 398 9 928 As % of total 92,9% 2,8% 4,3% Number of accounts 527 576 493 681 13 140 20 755 31 December 2007 Value (Rm) 213 612 206 044 2 316 5 252 As %
Slide 23: PBB South Africa mortgage lending book
PBB South Africa mortgage lending Income statement impairment charges 1 600 1 516 1 400 1 200 905 1 000 800 600 543 400 225 401 200 213 210 105 0 Rm Jun 2007 Jun 2008 Performing Loans Impaired Loss Discounting of expected recoveries Actual Write-Offs 45 Mortgage lending is still an attractive busine
Slide 24: Mortgage impairment charges; Mortgage lending still attractive
Credit environment – strategic response ● Significant focus on collections across the businesses – 44% increase in headcount to almost 2 000, since June 2007 – 19% increase in efficiency ● Proactive rehabilitation policies and processes ● Appropriate risk appetite for current cycle ● Continual re-ev
Slide 25: Credit environment – strategic response; Product reporting
Argentina ● People, process and risk integration complete ● Business model appropriate and core Global Markets expertise being transferred ● Short-term political turmoil and liquidity challenges led to reduced risk appetite – Corporate loan book pulled back and retail expansion plan on hold – Small
Slide 26: Argentina; Outlook
Ben Kruger Overview ● Global financial markets characterised by continuing high levels of volatility ● Strong revenue growth through the cycle ● Benefiting from product and geographic diversification ● Focus on risk, capital and liquidity remains a priority ● Evolving with our customer base by provi
Slide 27: Overview (CIB)
CIB abridged income statement and key ratios Jun 2008 change Jun 2007 Rm % Rm Net interest income 4 435 49 2 968 Non-interest revenue 7 612 24 6 156 Total income 12 047 32 9 124 Credit impairment charges 485 147 196 Operating expenses 6 380 32 4 831 Normalised headline earnings 3 726 20 3 099 ROE (%
Slide 28: CIB abridged income statement; Net interest income and margin
Non-interest revenue ● Non-interest revenue up 24% to R7 612m (Jun 2007: R6 156m) ● Net fee and commission revenue up 35% to R2 563m (Jun 2007: R1 905m) – Growth in arranging and advisory revenue driven by deal flow in Investment Banking – Transactional products ● Other revenue down 46% to R272m (Ju
Slide 29: CIB non-interest revenue; VaR and trading income
Distribution of trading units for the period ended 30 June 2008 18 16 Frequency of trading days 14 12 10 8 6 4 2 0 -45 -40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125 130 135 140 145 150 155 160 165 170 175 180 Rm 57 Credit losses ● Cr
Slide 30: Distribution of trading units; Credit losses
Operating expenses ● Operating expenses up 32% to R6 380m (Jun 2007: R4 831m) ● Staff costs increased 25% to R3 861m (Jun 2007: R3 090m) – Increased headcount as a result of acquisitions – Provision for performance related costs ● Other operating expenses up 45% to R2 519m (Jun 2007: R1 741m) – High
Slide 31: CIB operating expenses; Product reporting
Nigeria ● Profit after tax of US$74m against a full year target of US$100m for 2008 ● Stanbic IBTC officially launched and a number of key deals concluded ● Strong performance from CIB, most notably Global Markets, Corporate Finance and Custody ● Wealth and Asset Management performed well, with grow
Slide 32: Nigeria; Group liquidity
Outlook ● We expect turbulent market conditions to remain ● Maintain heightened awareness on risk and liquidity management ● Increase focus on cost discipline and efficiency ● Growth through scaling up key regions, most notably Brazil, Russia, Turkey, Nigeria and Angola ● Improve our coverage and po
Slide 33: Outlook
Liberty Life ● Contribution to headline earnings down 46% – 4% of group headline earnings ● Poor performance of SA financial and industrial equities contributed significantly to the shareholder investment portfolio losses ● Normalised EPS before capital gains/losses on shareholders’ portfolio down 1
Slide 34: Liberty Life
The strategy is working ● CIB strength supporting PBB and Liberty in tough times ● Non-South African operations growing at a faster rate than South Africa – Strong performance from Rest of Africa, particularly in Nigeria – CIB International resilient in exceptionally difficult global environment ● I
Slide 35: The strategy is working; ICBC; Looking ahead
Looking ahead ● Projections very difficult in current conditions ● Voluntary trading update – late October ● Primary focus on doing the basics right ● Pushing ahead with our strategic initiatives ● Growing in developing markets ● Capital and liquidity strength 69 35