Standard Bank Group Limited · JSE:SBK
Standard Bank — UBS Investor Conference 2003
36 slides from Standard Bank's conference presentation, Oct 16, 2003
Slide 1: ...bDlueprint fo pgeimenWade
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Slide 2: Challenges for revenue growth and profitability in a declining interest rate environment
Challenges for revenue growth and profitability in a declining interest rate and low inflation environment UBS Investor Conference 16 – 17 October 2003 Cape Town Simon Ridley CFO 2
Slide 3: Economics
Economics 25 Forecast Prime 20 lending rate CPI 15 % SBSA 10 Credit losses 5 0 1984 1990 1996 2002 Sources: SA Reserve Bank, Statistics SA, Standard Bank 3
Slide 4: Inflation trends
Inflation trends Decade averages 1960’s 1970’s 1980’s 1990’s 2000’s Forecast to 2004 CPI 2.9 9.9 14.6 9.9 7.0 3.5 CPIX 7.9 4.9 PPI 2.8 11.7 14.2 7.9 7.7 3.0 • SA’s inflationary structure substantially shifting to a much lower level • Likelihood is high that, for the first time in decades, our inflat
Slide 5: The new regime
The new regime • Within an inflation-targeting regime CPI and PPI should move within the 6 – 3% band • May be pushed outside of this band temporarily by • Currency volatility • Global financial instability • Political events • No room for inefficiencies • 10% plus mentality has to shift • Wage negot
Slide 6: Responses by international banks to low interest environment
Responses by international banks to low interest environment • Absorb margin compression • Look for market share • Diversity of revenue sources • Focus on customer • Increased importance of distribution channels Source: Merrill Lynch investor conference “Living in a 1% world” 6
Slide 7: Responses by international banks to low interest environment
Responses by international banks to low interest environment • Leverage the brand and franchise • Costs constrained • Significant focus on credit risk • More active capital management Source: Merrill Lynch investor conference “Living in a 1% world” 7
Slide 8: Review of environmental impact on SBK earnings growth
Review of environmental impact on SBK earnings growth 8
Slide 9: Attributes for growth - Domestic
Attributes for growth • Domestic • Strong brand • Revenue diversity • Lending products generating annuity income • Strong distribution capacity • Intense sales focus in retail • Customer centric business model • New customer bases • Appropriate cost control 9
Slide 10: Attributes for growth - International and Africa
Attributes for growth • International • Operating in developing economies • Large resource and trade flows • Exciting product potential • Africa • Significant potential for retail banking roll-out • Acquisition potential and experience 10
Slide 11: Headline earnings mix 1H03
Headline earnings mix 1H03 Retail 17% (13% ) 37% (36% ) STANLIB 3% (8% ) SCMB 8% (9% ) Stanbic Africa Liberty Group operations International Operations 34% (32% ) 1% (2% ) 1H02 figures in brackets 11
Slide 12: Impact on domestic margins
Impact on domestic margins • Repricing mismatch • Endowment effect • Wholesale/retail mix • Risk-based pricing • Asset and liability management 12
Slide 13: Domestic loan growth
Domestic loan growth 120 100 Retail advances Rbn 80 W holesale 60 advances 40 20 0 FY00 FY01 FY02 1H03 Retail asset mix increasing 13
Slide 14: Asset & liability management
Asset & liability management • Repricing risk • Liquidity constraints • Lending portfolios • Optimising liquid asset portfolios • Hedging activities 14
Slide 15: Asset & liability management
Asset & liability management • Overlay transactions on existing balance sheet positions • AC133 has narrowed opportunities for macro hedging • Continually look for curve opportunities - forward forwards are where the real value is found 15
Slide 16: Impact on credit losses
Impact on credit losses • Default incidence should reduce: - Retail - Corporate • Discount release – AC133 • Sustained improvement in credit quality 16
Slide 17: Credit loss history
Credit loss history 6 5 4 % of advances 3 2 1 0 FY98 FY99 FY00 FY01 FY02 1H03 Income statement charge Balance sheet provision NPLs 17
Slide 18: Non-interest revenue compensates
Non-interest revenue compensates • Trend over time indicates less reliance on margin income • High volume transaction businesses built up over recent years • Volume growth plus inflation • Trading income mainly based on client flows and across diversified markets • Bancassurance continues to grow 18
Slide 19: Revenue composition by major type
Revenue composition by major type 100% 80% 60% Non-interest Other net interest 40% Domestic net interest 20% 0% FY00 FY01 FY02 1H03 Less reliance on domestic net interest 19
Slide 20: Non-interest revenue composition
Non-interest revenue composition 100% Other income 80% 60% Trading income 40% Fee & Commission income 20% 0% FY00 FY01 FY02 1H03 20
Slide 21: Cost containment
Cost containment • Inflationary expectations • Ability to flex costs • Imported services • In-sourcing to SA remains viable • Minimal deferred costs to amortise • Avoid cutting costs and sacrificing long term strategy 21
Slide 22: Growth in income and costs
Growth in income and costs 30 25 20 Costs flexed Total income growth % Cost growth 15 10 5 0 1997 1998 1999 2000 2001 2002 HY2003 22
Slide 23: Capital management
Capital management • Optimisation of capital important • Cost of equity reducing • Capital position provides capacity for growth • Internal capital generation remains strong 23
Slide 24: Group capital adequacy ratio
Group capital adequacy ratio 16 14 12 10 Total % 8 Tier 1 6 7.5% 4 2 0 FY00 FY01 FY02 1H03 24
Slide 25: Group cost of equity
Group cost of equity 25 20 % ROE 15 Cost of equity 10 Benchmark long bond 5 FY00 FY01 FY02 HY03 25
Slide 26: Revenue diversity: summary
Revenue diversity: summary • Geography: 25% of earnings outside of SA • Revenue type: 50% of revenue is non- interest • Customer type: over 50% of Group’s earnings are wholesale • Asset class: low interest rates should at some stage be good for equity markets - Liberty earnings 26
Slide 27: Earnings contribution by geography
Earnings contribution by geography 100% 80% 60% Africa International 40% Domestic 20% 0% FY00 FY01 FY02 1H03 27
Slide 28: Earnings contribution by product 1H03
Earnings contribution by product 1H03 Instalment finance Mortgage lending Card Transactional products Bancassurance Life insurance Commodities & resource banking Global markets Banking and trade finance Corporate finance & investments Structured debt and property finance Global fund management Not o
Slide 29: GDP growth in selected markets
GDP growth in selected markets 2002 2003 forecast % % South Africa 3.0 2.2 Uganda 6.6 5.4 Mozambique 8.3 7.0 Russia 4.3 6.0 Brazil 1.5 1.5 Turkey 7.8 5.3 China 8.0 7.5 Good growth prospects in developing markets Source: IMF World Economic Report, Sep 03 29
Slide 30: Some less evident effects of lower interest rates
Some less evident effects of lower interest rates • AC133 provisioning produces compensating effects • Interesting opportunities to raise interest- bearing capital • Non-earning assets cheaper to fund • SARB Reserving • IT assets • Bricks and mortar • Empowerment financing easier to structure • Secu
Slide 31: Summarised impact on group earnings growth
Summarised impact on group earnings growth Track record of relatively strong revenue growth 2003 • Slower growth in the second half 2004 • Domestic banking net interest income growth impacted • Credit losses and advances growth not expected to show sudden improvement off good bases 31
Slide 32: Summarised impact on group earnings growth: 2005 onwards
Summarised impact on group earnings growth 2005 onwards • International and Africa growth opportunities should have positive effect • Credit loss ratios should continue to improve • Advances growth expected to be supported by lower rates 32
Slide 33: Hard-learned banking principles which should remain true
Hard-learned banking principles which should remain true • Don’t be too reliant on lending • Credit loss ratios always important • Avoid the major mistakes • Cutting costs as a primary strategy leads into a cul-de-sac • Talented people will make even more of a difference in a lower margin environmen
Slide 34: Standard Bank's DPS growth 18.3% compounded annually
Standard Bank’s DPS growth 18.3% compounded annually (Standard Bank vs Anglos) Sustained growth in dividends over 21 years 34 Source: I-Net
Slide 35: Conclusion
Conclusion • Good domestic attributes for long term growth through economic cycles • Prospects for increased growth in operations outside of Standard Bank of SA • 2004 likely to be a difficult year, but real earnings growth of 10% appears achievable over the medium-term 35
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