Standard Bank Group Limited (SBK) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. On behalf of everyone at the Standard Bank Group, thank you for joining us for our first fully online results presentation. [Operator Instructions] Before starting the presentation itself, I'd like to take a moment to honor the memory of those Standard bankers who have lost their lives in the pandemic. There's been a handful. Our thoughts are with them and with their loved ones. I'd also like to express our profound gratitude to the health professionals and to other essential workers, including thousands of Standard Bank staff. Thank you for your courage, your determination, your stamina and your empathy. The results we are presenting this morning reflect the economic damage caused by the pandemic, but they also reflect the strength of the Standard Bank Group. They demonstrate our capacity to support our clients and our communities, and to make considerable strategic progress during the most difficult 6 months in living memory. This half, 62% of our banking headline earnings were generated by our Africa Regions businesses. This illustrates the strength of our Africa-wide portfolio. And of course, also sums up the extent of the damage to the South African economy. Our Corporate & Investment Banking business was another major source of strength this half, and in particular, our Global Markets business, which responded with great accuracy to challenging and volatile market conditions. The first 6 months of this year saw unprecedented declines in economic activity and asset prices throughout the world. We've seen fiscal, monetary, public health, technological and social responses that were equally unprecedented in their pace and scale. The economic effects in South Africa have been particularly negative with the economy expected to have its worst year in a century and with a mounting risk of a sovereign debt crisis. We have structured our response to the pandemic into 3 overlapping phases: respond, recover and reimagine. I will say more about respond just now, and then address recover and reimagine at the end of the presentation. As the pandemic took hold in March and April, our immediate priorities were to support our clients and to do everything we could to keep our staff safe and well. In our view, these priorities were clearly also in the immediate and longer-run interest of our shareholders. The group's essential services have functioned without material disruption throughout the period. We are confident that they will continue to do so as we make the transition back to more normal operations. Over the first 6 months of this year, we have provided client relief worth ZAR 118 billion to personal and SME clients, we've assisted corporate clients at ZAR 48 billion of exposure and, with Liberty, paid out ZAR 6.4 billion in short-term and insurance claims. Thanks to extremely hard and rapid work by our facilities and IT teams, we have enabled more than 80% of our colleagues to work from home. We have done everything we can to make our offices and branches safe for our colleagues and for our clients. For example, by implementing university -- universal daily symptom checks and by providing gloves, masks, distance markers and perspex screens. It has become cliché that modern financial firms are IT companies. In our case, total IT function spend amounted to nearly 1/3 of our total operating expenses over the half. This is appropriate. Nearly all of our clients want nearly all of our services delivered online. They expect our services should be at least as reliable as those provided to them by global big tech firms. In order to achieve this, we first needed to replace our legacy systems with a modern core banking system. That's now been completed. Having done that, we then needed to construct and maintain an efficient and flexible front end that can deliver our services and solutions securely, 24/7 and in a user-friendly way to our clients. Our IT investments resemble any other investment portfolio. There's no real return without risk and some investments just will not pay off. Notably, we have found that aspects of our work performance to improve these client engagement system were no longer suitable, and it was, therefore, necessary to recognize a large impairment of the previously capitalized asset. We remain certain that it's far better to innovate than to pursue the false security of trying to take no risk. In our increasingly digital industry, that would simply guarantee obsolescence. With this commitment to ongoing innovation in mind, we are now in the fourth phase of our IT journey, and it is with this in mind that we are aiming to provide increasingly personalized and comprehensive solutions for our clients on our digital platform. I'll provide some specific examples in a few minutes and say more about our medium-term vision before we conclude. Despite the most challenging economic conditions in a century, the group's pre-provision operating income was up 4%. A dramatic decline in group headline earnings, therefore, is very largely driven by the 166% increase in credit impairment charges over the period. This reflects the extraordinary strain on households and firms imposed by the pandemic in South Africa, in particular. Our capital and liquidity positions remain strong and well above regulatory minimum. At 8.5%, our return on equity reflects the once in a century economic conditions experienced over the half and our cautious management of credit risk in light of the large uncertainties we continue to face. Now turning to our value drivers, the first one of which is client focus. In addition to the client relief measures mentioned earlier, we have also waived fees, reduced premiums and paid out premium cash-backs, for instance, to clients who have been driving less as a result of the lockdowns. We have played an active role in the industry in all the initiatives and also in the public partnerships that were calculated to mitigate the economic damage caused by the pandemic. It's important to emphasize that we have continued to develop and launch new solutions over the half. Here are some examples of how we're expanding the digital solutions available to our clients. Entrepreneurship is a major driver of economic growth, particularly when small businesses develop the potential to expand and contribute to job creation. To enable small businesses to grow, we have created a suite of successful digital solutions that support the growth of Africa's SMEs. For example, we launched SimplyBlu towards the end of 2019 to enable small enterprises in South Africa to move their businesses online. Our BizFlex SME lending solution has been taken up by almost 4,000 SMES since launching mid-2019, with ZAR 600 million in loans dispersed. The OneFarm platform in Uganda is now used by more than 500 farmers and has been proven to significantly increase their crop yield. Among several other solutions, I would also draw your attention to, firstly, TradeClub, which connect our clients to more than 20,000 businesses across 60 countries, drawing on our digital trade alliance with 14 leading international banks. And secondly, QuantumTrade, which is the first proposition out of our award-winning Quantum Leap program for corporate customers. This has reduced the processing time for guarantees and letters of credit from days to an average of just 25 minutes. We have continued to focus on ensuring that our client can conveniently and seamlessly meet the needs on our digital platforms. We have added a new feature -- well, several new features and services for our mobile banking app 6x so far this year, such as the ability to register tax free investments accounts and improved functionality for our reward program. Our My360 wealth management app has been developed and downloaded by 27,000 clients. Clients continued to enjoy our contactless, virtual and cashless offerings during this time. More than 100,000 new virtual cards were loaded to enable clients to safely shop online, while businesses made 15% more InstantMoney bulk payments in this half as they increasingly adopt this cashless option to pay employees without bank accounts. Our LookSee platform has been used by almost 340,000 unique visitors in the last 6 months, an increase of 25% compared to the prior period. And we have 13x as many subscribers to Standard Bank Mobile as a year ago, with clients enjoying the convenience, affordability and flexibility of this offering. And of course, we have not stopped innovating. For example, in July, we successfully processed our first client-originated cross-border transaction end-to-end using blockchain. Moving on to employee engagement. In June, we surveyed all staff, asking them how they were doing and how they were feeling. We had a good response rate, and we're very pleased with the results. 95% of staff reported that they have adapted well to working from home or to social distancing conditions in their branches or their offices. 89% of Standard Bankers felt proud of what we have done to support our clients and colleagues during the pandemic, I'm part of that large majority. Just as we have not allowed the pandemic to stop us from innovating in the service of our clients, we have not stopped equipping ourselves with the skills that we need for the digital age. Quite the reverse, our colleagues have accessed almost 400,000 learning items from our online learning platform since April. Turning now to risk and conduct. While we manage a broad range of financial and nonfinancial risks on an ongoing basis, we are focused particularly on portfolio and ESG risks over this half. Looking at the group's portfolio as a whole, 3 points are worth emphasizing. First, our book is very well diversified by business line and geography. Second, despite considerable strain on our clients, we remain within risk appetite. We have more than enough capital to support our lending comfortably and to continue to expand lending when appropriate. Third, we are and will remain in a state of heightened vigilance, being very close to our clients as the pandemic and its aftermath unfold. The Standard Bank Group is firmly committed to doing everything we can to mitigate climate change and to promote a just transition away from carbon-intensive development. We will publish our first TCFD-aligned disclosures and our fossil fuel financing policy before the end of the year. When considering whether or not to support any particular project, we will continue to consider its economic, social and environmental impact in a balanced and holistic way. Finally, on this point, we do not see these issues as inevitably characterized by stark dichotomies. We think it is usually possible to find solutions that promote both human development and environmental sustainability, whilst also making a good return for our shareholders. Our sustainable finance team is having a lot of success doing just that. I will now hand you over to Arno.

Thank you, Sim, and good morning to everyone. I'm now going to take you through the financial outcome for the group. For the 6 months ended 30th June, 2020, starting on Slide 17. This slide, which most of you will be accustomed to, illustrates how we think about growth, resilience and returns to drive shareholder value. In a crisis period like we are going through, management's immediate attention and focus has been on ensuring resilience, and this score we have fared well with our common equity Tier 1 ratio at a healthy 12.6%, the ratios of our both the regulatory minimum and our internal targets, providing a large cushion in these difficult times. It also allows us to continue to support our clients in their time of need. And as you can see from our asset growth on to left-hand side of this slide, in this tough environment, interest rate margins and fees came under pressure, offsetting an excellent trading result. The overwhelming impact on the set of results has been a significant increase in the charge for credit impairments, which I will discuss in detail on later slides. Banking activities headline earnings consequently dropped 40%. And as Sim mentioned, group headline earnings dropped 44%. In line with the South African Reserve Bank's guidance, the Standard Bank Group Board has not declared an interim dividend. Slide 18 provides a snapshot of interest rate movements in our key markets over the last 18 months. Widespread interest rate cuts we experienced in almost all the markets in which we operate. In South Africa, the SARB had started cutting rates in the second half 2019, and accelerated by the crisis, cut a further 275 basis points in the period. This slide shows currency movements relative to the rand over the same 18-month period. Rand weakness was a feature of a result this period. South Africa, Angola and Zambian sovereign downgrades were all evident in their currency's weakness in the period. Turning to Slide 20. Client activity is a dominant driver for revenue, and the impact of various stages of lockdowns and curfews across our operations had a significantly negative impact. We have provided more detailed analysis in the business line discussions later. But it is clear from this summarized analysis that across the board, transactional banking activity was stalled during lockdowns. As can be expected, digital activity levels held up well and further displaced branch-based activity. Our wealth businesses proved resilient with AUM, assets under management in other words, and deposits increasing. Trading activity and volumes increased as corporate clients hedged and rebalanced their portfolios. Our equities franchise showed excellent growth to increase market share in values traded on the JSE by over 100%, showing the importance of contribution of our flow and electronic trading capabilities. This slide provides a summarized group income statement. Net interest income was supported by strong balance sheet growth, albeit at shrinking margins, resulting in a flat outcome on the prior period. Robust trading revenues helped noninterest revenue grow by 6%. Costs were well contained at a growth of 1.8%. Positive jaws of 100 basis points or a pre-provision operating profit, which pleasingly grew 4% period-on-period to ZAR 24.3 billion. Credit impairment charges of ZAR 11.3 billion were 2.7x higher than the prior period, reflective of the very difficult environment and resulted in a credit loss ratio of 169 basis points. Consequently, banking operations reported headline earnings of ZAR 7.7 billion at 40% from the prior period. After accounting for our business in ICBCS and Liberty, group headline earnings were ZAR 7.5 billion, which is a decrease of 44% on the first half of 2019, and resulted in group return on equity of 8.5%. Turning to Slide 22, in this period, there were some large items which resulted in a sizable difference between the group's headline earnings and profit attributable to ordinary shareholders. As you know, headline earnings is a JSE-mandated measure of operating earnings and excludes items of a capital nature. Profit attributable to ordinary shareholders is calculated including these capital and nontrading items such as in this reporting period, impairments on intangible assets and the net gain on the exit of our investment in Argentina. After taking these into account, attributable profit was 71% lower than the prior period. The bulk of the intangible asset impairment in the period relates to a system known as New Business Online. Our corporate and business clients perform their daily banking on our platform Business Online. An updated version of the software was rolled out to clients in Africa Regions over the past few years, with South African clients due to be upgraded this year. We recently made the decision not to migrate South African clients onto the upgraded platform. As we believe our clients will be better served by the deployment of our more modern platform. Components of the build for South African clients were asset sales that's impaired and a ZAR 2.1 billion impairment on a pretax basis was consequently recognized. This slide, Slide 23, sets out strong balance sheet growth, which supported NII. Average loan growth for the period in CIB was 19%, mainly driven by corporates accessing liquidity. In PBB, growth was slower at 7%, with strong growth in digital disbursements, unsecured loans, offset by slower growth in traditional secured lending impacted by lockdowns. Restructures of loan books during the period were significant, as Sim pointed out, and installment holidays and a slowdown in prepayments contributed to book growth. Deposit growth has been strong across the banking sector as clients held on to liquidity in an uncertain environment. Turning to net interest income on Slide 24. Net interest income was flat as balance sheet growth was offset by margin compression. Margins declined by 57 basis points to 387 basis points, as you can see on the slide. The biggest driver of the decline was the change and reduction in interest rates. On a weighted basis, average interest rates declined over 150 basis points across our portfolio period-on-period. This led to negative endowment on capital and funding of 25 basis points. Pricing pressure contributed a further 18 basis points to the decline as certain assets repriced faster than deposits and CIB and VAF experienced competitive pricing pressures. In addition, as you can see on the slide, there was a negative mix impact of 12 basis points. CIB loans and deposits grew faster than PBB and additional liquidity resulted in higher cash balances. Moving to Slide 25, which details noninterest revenue. Within noninterest revenue, fee and commission income declined as consumer activity levels and transactional volumes decreased significantly as a result of the lockdowns. Higher digital transaction volumes were offset by lower business in electronic funds transfer fees. Fee and commission revenue was supported, however, by growth in assets under management, most notably in Nigeria. Trading income grew 40% to ZAR 8.1 billion. Client transaction flows and associated trading revenues increased significantly, as clients navigated a complex and a volatile environment. ForEx trading was the main contributor to this result across all markets. I'm now going to discuss credit provisioning, starting with balance sheet provisions across the group. The graph on the left of this slide provides an overview of the key movements to balance sheet provisions from 1 January this year to 30th of June. As you can see, provisions increased 31% from ZAR 35 billion to over ZAR 46 billion. The graph in the middle provides a snapshot, the composition of the balance sheet provisions by stages. As you can see, the biggest increase were in stage 2, up 40%; and stage 3, up 31%. Turning to Slide 27. Across the top of this slide, you can see loan formation and staging in the period starting with group on the left, PBB in the middle, CIB on the right. Stage 1 loans, as you know under IFRS 9 rules, are performing loans. Stage 2 loans have experienced a significant increase in credit risk. Provisions raised against stage 1 and stage 2 loans are largely driven by macroeconomic experiences. Stage 3 loans are considered impaired and provisions against these loans are driven by idiosyncratic factors applicable to the specific portfolio or the individual name. Across the top of the slide, you can see that stage 2 and stage 3 loans have increased as a proportion of the loan books. And this indicates higher levels of stress in the portfolio. Stage 3 loans have increased to 4.6% of the entire book, and this is up 3.9% in the prior period. Across the bottom of the slide, you can see the corresponding buildup in the balance sheet provisions and our detailed modeling indicated was appropriate at this point in the crisis. It is evident that provisions have grown faster than balances in all instances, and overall coverage ratios have increased from 2.9% to 3.3%. In PBB South Africa, we provided unprecedented relief to clients, mainly in the form of payment holidays and term extensions during the period. The loan book, subject to relief conditions, amounted to ZAR 107 billion at 30th of June, and that is 18% of the portfolio. Slide 28 covers balance sheet -- PBB SA balance sheet provisions in detail. And to enable a detailed analysis, we have shown the client relief portfolio separately. 20% of the balances in the client relief portfolio had experienced a deterioration in their risk profile, and hence, were classified as stage 2 loans. But less than 1% of the portfolio that had been retrenched received 0 turnover or experienced permanent loss of income. And these loans, of course, will move then into Stage 3. Using soft guidance and our detailed provision models, we calculated that provisions of ZAR 2.6 billion were required to be held against the relief portfolio in expectation of defaults as the restructured terms are normalized. It is important to note that the clients provided with relief through restructures were all performing at the time of being granted relief, and so we are comfortable with the lower coverage ratio on this portfolio. Overall, PBB SA's coverage ratios have increased from 4.3% to 5.3%, and we are confident that collateral values and recoveries are being consistently and conservatively revalued. Turning to Slide 29. I will take you through the PBB SA income statement charge for credit. As reflected on the graph on the left-hand side, PBB SA's total credit charge for the period was ZAR 7.7 billion and 2.6x higher than that of the first half of 2019. This translated into a credit loss ratio of 261 basis points. The waterfall graph reflects the buildup of the charge, which can be analyzed into 3 main buckets: bucket number one, stage 3 impairments. These impairments amounting to ZAR 4.9 billion arose in the ordinary course of lending, where clients' prospects of repayment deteriorated in the period. Our normal credit models and processes were applied here. Bucket number two, forward-looking assumption changes. Our credit models are required under IFRS 9 to apply forward-looking assumptions. We have shown it separately because our forward-looking assumptions changed materially between reporting periods. This change in assumptions added ZAR 600 million and ZAR 76 million to the charge, taking our forward-looking assumption provision on balance sheet to ZAR 2 billion. Bucket number three, income statement charge for provisions required against the COVID-19 client relief book was an additional ZAR 2.1 billion with stage 2 and 3 impairments. In PBB Africa Regions, the client relief portfolio amounted to ZAR 10.9 billion, and that is 12% of the book, with most of this book in stage 1. Our PBB exposures in Africa Regions have been less impacted by COVID-19 than in South Africa, and this can be attributed to less severe lockdowns in these economies. Coverage ratios have been strengthened in this book, from 5.6% to 6.5%. Moving to the PBB Africa Regions income statement charge on Slide 31. Starting on the left-hand side again, PBB Africa Regions charges increased to ZAR 883 million. This translated in a credit loss ratio of 206 basis points. Turning again to the waterfall graph, the analysis is similar. Stage 3 impairments where the largest increase in the charge of the back of increased stage 3 loans in Kenya, Mozambique, Tanzania and Uganda. In Africa Regions, notable recoveries assisted in diluting the charge. Forward-looking assumption charges in Africa Region contributed an additional ZAR 141 million charge, bringing the total balance sheet forward-looking provision to over ZAR 500 million for PBB Africa Regions portfolios. And the additional COVID-19-related provisions added another ZAR 109 million to the charge. Moving to CIB. Credit impairment charges on Slide 32 and starting on the left-hand side, CIB's charges increased ZAR 2.2 billion. This translated into a credit loss ratio to customers of 88 basis points. CIB Stage 3 charge is based on granular and specific name-by-name risk review of underlying exposures. Forward-looking information is integrated into the ratings review processes, and probability of default modeling and is therefore not shown separately. In addition to the BU model impairment charges, we have raised an additional central provision amounting to ZAR 500 million as an additional buffer to cater for the realization of a more bearish outlook that our models have catered for. The outcome of the COVID-19 pandemic is unpredictable, and this makes determining scenarios and the underlining assumptions, determining them, complex. Given this uncertainty, the group has deemed it appropriate to recognize an additional judgmental credit adjustment on the total loans advances to customers' portfolio. Overall, for the group, you can see here the credit impairment charge increased to ZAR 11.3 billion. We continue to reevaluate the depth and expected duration of the current downturn to ensure the appropriate strategies are in place. These include our heightened focus on reidentification of distressed accounts, increased collection capabilities, efficiencies and proactive rehabilitation policies and process. Based on available data and our scenario-based analysis, we are appropriately provided for the severity of the current crisis. However, the outcome of the pandemic is by no means clear, and further provisions may be required should the outlook deteriorate beyond our BU case scenario. Moving on to operating expenses on Slide 34. Cost growth, as you can see, was well contained at 1.8%, supporting positive jaws of 100 basis points. Staff costs were 1% as any salary increases were offset by lower headcount and lower performance-related incentives. Other costs increased 3% as lockdown-driven reduction in discretionary spend, for example travel and entertainment, were offset by increases in IT costs, which were up 26%. The investment in customer proposition development was accelerated, particularly in customer journeys and in Global Markets systems investments. The cost of skilled contractors has displaced staff costs in the period. We struggled to source permanent staff with the required skills. Additional expenditure incurred in the period as we upgraded remote access and firewall software to enable our people to work off-site. Slide 35 provides a breakdown of our total IT spend for the first 6 months over the last 5 years. Despite the difficult operating environment, we continued our investment to transform to a future-ready group. Our total IT function spend increased 16% in the period and 6% per annum over the last 4 years. The main drivers of this expense were investments in turnkey consultants, software licenses, hardware expenses, data lines and cloud subscription services. Turning to Liberty on Slide 36. Liberty's performance, as you know, was negatively impacted by higher morbidity and mortality claims, new business trend and the creation of a ZAR 3 billion pandemic provision to cover future costs related to COVID-19. STANLIB South Africa reported improved earnings for the period as well as increased net external third-party client cash inflows. The shareholder investment portfolio performance reflected negative investment market returns, particularly in respect of foreign and local equity position. Liberty reported a headline loss of ZAR 2.3 billion compared to the profit of ZAR 2 billion in the prior period, after adjusting for treasury shares and the group's 57% of the loss amounted to ZAR 707 million. Liberty remains well capitalized, they're financially strong and remains a very important part of our holistic client offering. Turning to other banking interests, which historically included our minority stakes in ICBC Standard Bank plc and ICBC Argentina. Starting with ICBCS on Slide 37. As reflected in the graph on the left-hand side, ICBCS recorded a profit of $70 million in the period. This was a much improved outcome relative to the loss of $130 million in the prior period. Turnaround was driven by the nonrepeat of a single client loss last year, revenues earned on the back of the market volatility experienced this year and an insurance recovery payment related to the aluminum-related losses in the business incurred in Qingdao in 2015. The group's 40% share of ICBCS' earnings equated to just over ZAR 500 million. Moving to Slide 38. This provides a summary of the accounting implications of the sale of ICBC Argentina. In August 2019, the group exercised its option to sell its 20% stake in ICBC Argentina to the Industrial and Commercial Bank of China. From September 2019 onwards, the investment was recognized as held for sale, and the group ceased recognizing its share of profits. A debit FCTR reserve accumulated over the life of investment due to the devaluation of the Argentinian peso versus the rand. The sale was completed on the 29th of June 2020. And on completion, the group recognized a gain on sale of ZAR 1.4 billion. At this same time, the accumulated FCTR reserve of ZAR 3.4 billion was released to earnings. The net impact of ZAR 2 billion negatively impacted earnings attributable to the group in this period, but this was outside of headline earnings. Moving to capital and liquidity. Slide 39 provides an overview of the group's capital stack and common equity Tier 1 ratios over the last 4.5 years as well as our liquidity ratios. Despite the very difficult operating environment and shock to earnings in the period, the group has maintained robust capital and liquidity position. Our capital levels increased to ZAR 205 billion with a strong IFRS 9 phased-in common equity Tier 1 ratio of 12.6%. The group's liquidity position remains strong with a net stable funding ratio in excess of the 100% regulatory requirement. The group's Basel III liquidity ratio amounted to 136%, while in excess of the temporarily reduced minimum regulatory requirement of 80%. As we saw in the previous slide, the group ended the period with a common equity Tier 1 ratio of 12.6%, down from 14% at year-end. The waterfall graph on the left-hand slide provides a summary of the key drivers of the decline on the CET1 ratio in the period. As you can see, the increase in RWAs, risk-weighted assets in other words, was the key driver. On the right-hand side of the slide, we have provided a breakdown of the risk-weighted assets as at 31st of December and 30th of June on either end of the graph, as well as the drivers of this RWA growth. Credit RWAs, the biggest category and reflected in the dark blue bars, increased 23% over the period, with CIB driving this increase on the back of our bigger loan book, increased staging of loans, credit rating migrations and higher loss given default assumptions. Importantly, at our current capital levels of a 12.6% stage 1 ratio, we could have absorbed almost 6.6x the credit charges and remained above the regulatory minimum or common equity Tier 1. Slide 41 provides the ROE over the last 5 comparative periods, the key drivers of the decline in this period, most notably the decline in headline earnings, as you would expect. I will now take you through the results of our 2 business units, PBB and CIB. On Slide 43, we have set out the PBB's results. PBB's pre-provision operating profits declined by 6% as revenues declined 1% and costs increased by 2%. As discussed, PBB's credit charges increased to ZAR 8.6 billion, which resulted in headline earnings dropping by 60%. Geographically, PBB SA was impacted by negative endowment, elevated impairments, low transactional volumes and a significant decline in loan disbursements in the second quarter, which saw headline earnings dropping by 68% to ZAR 1.6 billion. PBB Africa Regions maintained headline earnings at ZAR 500 million on the back of strong revenue growth and positive jaws. Ongoing customer acquisition, balance sheet growth as well as asset management insurance growth were enough to offset subdued activity levels and regulatory directives on fees. Wealth International headline earnings dropped by 34%, with revenues negatively impacted by lower interest rates. Structural balance sheet changes require in these offshore entities following the South African sovereign downgrade have also impacted performance. However, underlying client growth has continued with both client numbers and lending balances increase. Slide 44 sets out the impact of the pandemic on lending activity levels in PBB South Africa to give you some color to asset formation of revenue generation in the period. As you can see, our mortgage and VAF disbursements were significantly impacted by the lockdown and the deeds office in South Africa was closed during the month of April. In Personal lending, where a fully digital origination alternative exists for clients, we saw digital origination becoming a bigger proportion of lending transaction. Slide 45 sets out the transactional activity levels over the period in South Africa. It is clear from these graphs that activity levels improved as lockdowns eased. Customer spend on travel agencies, airlines, hotels, car rentals, restaurants and bars have obviously remained negative throughout the second quarter, while a resumption of activity has been noted in professional services, which includes e-commerce, retail stores, appliances, interiors and hardware stores. Turning to CIB and Slide 46. During this period of significant volatility and disruption, CIB continued to proactively engage with clients to provide tailored funding, liquidity and risk management solution. Pre-provision operating profit grew 19% on the period -- on period-on-period, which was a very pleasing result. CIB revenues grew 11%. Cost growth was well contained at 5%, delivering positive jaws of over 6% and an improved cost-to-income ratio below 50%. Significant increases in impairment charges were recorded in East Africa, South and Central Africa as well as South Africa. CIB's headline earnings declined by 7% to ZAR 5.7 million. This decline in earnings and increasing capital utilization led to a decline in ROE to 15.1%. Global Markets revenue grew 43% on the back of strong risk management and increased client activity in volatile markets. Africa Regions had a strong half, with revenue increasing by 53%, driven principally by Nigeria and Angola. In South Africa, the business maintained its foreign exchange market share and improved its equities market share. Investment in technology platforms resulted in cost growth of 7% for Global Markets. Headline earnings increased a very pleasing 88% to ZAR 4.4 billion. Investment Banking revenues were negatively impacted by muted growth in fees and equity investment write-downs on the back of the difficult economic environment. Robust gross loan origination and an increase in drawdowns on unutilized facilities supported average balances, which drove NII growth of 22%. Credit impairment charges increased significantly relative to the first half of 2019, driven by the non-repeat of a prior year recovery, and obviously coupled with deteriorating risk rates and increasing provisioning across the investment banking portfolio. Costs were flat. Investment Banking headline earnings declined by 91%, just under ZAR 200 million. Transactional Products and Services revenues were negatively impacted by margin pressure as well as adverse regulatory requirements, in particular in Nigeria. Credit impairment charges increased significantly as certain older Africa region's exposures moved into default. Costs in TPS were well contained despite ongoing investments in digital capabilities and higher AMCON charges in Nigeria. TPS headline earnings decreased by 36% to ZAR 1.2 billion. Slide 47 demonstrates CIB's resilience client revenues across our diversified client base. Client revenues increased by 10% in both multinational and domestic client segments. From a sector perspective, financial institutions continue to be the biggest contributor to the business, showing the trust we have built with other banking institutions. The consumer and technology telecoms and media sector has performed well, up 19% and 15%, respectively, weathering the effects of COVID-19. In the oil and gas sector, we have closed some material deals in West Africa and are encouraged by the progress being made in the Mozambican gas development. We saw a balanced performance across regions, with West Africa growing by 18%, East Africa, 14%; and South and Central, 12%. The challenges in South Africa are well understood, with the business being flat from prior year. Product performance was covered in the previous slide. Moving to our regional performance on Slide 48. The Standard Bank of South Africa's headline earnings declined 72% as the pandemic exacerbated a really difficult environment. This is in contrast to the group's Africa Regions business, which proved relatively resilient, delivering headline earnings growth of 11% and 7% in constant currency. West Africa's excellent trading performance and positive jaws delivered 28% in headline earnings in constant currency terms, 28% growth in headline earnings. The top 6 contributors to Africa region's headline earnings remained, Angola, Ghana, Kenya, Mozambique, Nigeria and Uganda. Turning next to SBSA on Slide 49. In South Africa, we had a very difficult 6 months. Interrupted power supply extended the fourth quarter 2019 recession into the first quarter of 2020. A sovereign downgrade, the onset of the pandemic and the strict lockdown that followed strangled an already flailing economy. Excellent cost discipline, aided by the impact of cost rationalization actions in the prior year, resulted in positive jaws, but this was not enough to offset shrinking revenues, and pre-provision profits declined by 3%. Credit losses in SBSA increased to ZAR 9.8 billion from ZAR 3.5 billion in the prior period. And headline earnings contracted to ZAR 2 billion. SBSA's common equity tier 1 ratio dropped to 11.4%, but remains well above regulatory and internal target rate. Our growing franchise African Regions delivered a resilient performance in the period, resulting -- resilient performance in the period against a difficult backdrop. Sub-Sahara and Africa experienced record capital outflows in the period and financial conditions tightened across the board. Trade and foreign exchange inflows dried up and oil exporters were negatively impacted by the lower oil price. Strong positive jaws drove pre-provision profits up 20%. Credit provisions doubled and were somewhat flattened by recoveries in the prior period. This resulted in headline earnings of ZAR 4.8 billion and a return on equity just under 20%. On Slide 52, you can see our previously stated medium-term financial targets for the group. COVID-19 has already had a profound impact globally, and there remains much uncertainty as to the ultimate human and economic toll. Therefore, at this stage, there is still too much uncertainty to confirm or revise these targets. What we do know is that activity levels are recovering, and we have capital and liquidity to support this recovery. This is very encouraging. But we also know that the pandemic impact on our customers, our employees and our suppliers has been significant. Interest rates are unlikely to pick up for a while. Our outlook may well deteriorate further overall or in pockets, which would have an impact on overall provisioning levels. We continue to run scenarios frequently, and we are ready to stand by our customers through infection peaks and market lows, through transitions and recoveries. Forecast risk clearly remains high, but lockdowns will be rolled back and economies will reopen, and we will remain steadfast in serving our clients and delivering value to all stakeholders. We are committed to driving sustainable and inclusive economic growth across Africa. On Slide 53, we have set out demonstrable progress that we have made in the last 6 months driving social, economic and environmental impact. The group spent an additional ZAR 50 million responding to COVID-19 in the first half of 2020, this included the provision of protective equipment, hospital infrastructure and humanitarian support across our country's operation. For example, in Stanbic Kenya, we donated just under 200 ventilators to Ministry of Health, almost doubling the number of ventilators available countrywide. Further, with the help of our strategic partner, ICBC, we coordinated the sourcing and delivery of $1.4 million of protective equipment from China. We immediately understood the consequences of the COVID-19 pandemic for small business in Africa, and over and above direct relief offered to our clients, we were instrumental in setting up and delivering mechanisms for emergency funding. On behalf of the SA Future Trust, we lent ZAR 250 million to small businesses to pay the salaries of nearly 23,000 employees. By the end of June, we approved in excess of ZAR 8 billion in loans to businesses via the South African COVID-19 government loan guarantee scheme. We've also underwritten in excess of $2.3 billion for renewable energy projects in Africa, producing 2 gigawatts of power. In pursuit of our purpose of driving Africa's growth, we remain purposeful in the allocation of resources. And as Sim mentioned earlier, ESG and our social, economic and environmental responsibility are intrinsically embedded in this allocation of resources. Thank you. I will now hand back to Sim to discuss the way forward.

Thank you, Arno. Now it is true to say that they may be some recovery in Global and South African economic activity as early as the second half, but we are definitely not counting on it. We don't know whether or not there will be a large second peak in the Northern Hemisphere. We don't know whether or not the pandemic is still at an early stage in most of Africa, and we don't know how quickly or even if better treatment and vaccines will become widely available. Our dominant themes in the second half, therefore, are to remain resilient, to manage our costs and risks very carefully, and to continue supporting our clients and our communities to the best of our ability. We will continue to digitize over the half. This is clearly a no-regrets choice as it will remain equally relevant during and after the pandemic. Our broad strategic direction for the medium and longer term remains unchanged. It is our ambition to be a truly digital group of companies providing services, solutions and opportunities that our clients and employees need to achieve growth, prosperity and fulfillment. Our key focus areas continue to evolve along with changing client expectations and market conditions. Our commitment to delivering exceptional client experiences has not changed and will not change. But of course, this implies that we need to keep updating our understanding of what our clients expect. In light of these expectations, we must now offer an extended range of services and solutions with the speed, agility, reliability and extent of personalization that people have come to expect from leading digital companies. To cite our usual example, people no longer merely want a home -- a home loan, they are looking for a set of solutions that will provide them with an affordable, comfortable and well-maintained and safe place to live. The same point applies to our Commercial and corporate clients. Companies are not just looking for fleet finance or for payroll or FX solutions, they are looking for the friction to be taken out of their financial operations so that they can concentrate on their core businesses. This, in turn, implies that our other 2 focus areas need to evolve. As discussed earlier, our digital focus area has to create the infrastructure that makes this kind of service possible. In addition to being efficient, robust and secure, it must also provide an integrated and comprehensive view of our clients so that we can understand and anticipate their needs. Our third focus area, integrated and collaborative, expresses the idea that we want to provide and expand the range of services in a seamless way and in collaboration with new partners. One way of thinking of this is to say that as well as having a shop, we want to own them all. We will have our own shop, but we will also think about all the other goods and services that our clients are likely to need. We will make sure that those services are safely, conveniently and reliably available in our mall. And we will, of course, collect rent from our tenants in return for the space and services that we provide. Finally, we remain purposeful in driving Africa growth, committed to our purpose that Africa is our home that will drive our growth. Talking of growth, it is clear that the pandemic has significantly altered the global and African outlooks over the medium and long term. While it is too early to be confident about which changes to the global political economy are likely to persist, we do think that public policy and regulation will probably be more risk-averse, that supply chains will be shorter and more diversified, and that a substantial proportion of economic and social life will have moved online permanently. Each of these changes has important consequences for the structure of economies, and we are thinking carefully about how to adapt in the best interest of our shareholders and stakeholders. To conclude, I'd like to reemphasize the points made in the opening slide of this presentation. As soon as we understood that we're entering a once-in-a-century global crisis, our attention shifted away from merely financial targets that we had set for ourselves at the end of 2019. Our priorities became doing the right things for our clients, for our staff and for Africa. As so often happens, doing the right thing was also the right commercial decision. We earned record revenues. We saw rapid deposit growth and our pre-provision operating profit is pleasing. As you can see, our capital and liquidity positions remain extremely strong. Clearly, our credit experience has been challenging. But as you have seen, it is well managed. I can't overemphasize how grateful I am and how impressed I have been by the way Standard Bankers have responded to this crisis. They have shown tremendous courage and they've worked extremely hard. We've all learned a great deal. We are far more digital as an organization than we were in January. Progress that might have taken years has happened in months and in some cases weeks. In general, the pace of the organization has accelerated remarkably. We submit, therefore, that we are very well positioned to support the recovery and to compete successfully after the pandemic. We will now go to questions. To assist with your questions, I have with me Arno; and then Zweli Manyathi, Head of PBB; and then, of course, Kenny Fihla, the Head of CIB. Please, would you indicate who your question is for, otherwise, we'll just allocate it on your behalf. [Operator Instructions] We will start with the conference call. And if I could just check if there are any questions from the operator on the conference call.

[Operator Instructions] Our first question is from James Starke.

Four questions from my side, 2 on asset quality. I think the first perhaps for Arno. If you could give us some color to the macro parameters that have shaped the bear case provisioning under IFRS. Second provisioning question and perhaps for Zweli. If you can give us some context on collections, how they were in July, how they compare to June and perhaps pre-lockdown levels on the PB book in aggregate? Third question I think maybe for Arno, on the New Business Online and the impairment. You mentioned it's ZAR 2.1 billion pretax. I mean, is there any -- how much is remaining of the book value? And then the last one, just on ICBC Standard, if you can comment on any prospects of any insurance recovery relating to Philadelphia Energy Solutions.

Arno, do you want to go first?

On the first question, thanks for that, James. On the bear case scenario, we've weighted that by 35%. The macro parameter, which is probably the most relevant there, that assumes a 13.2% GDP, real GDP contraction in South Africa for this year in 2020. Our base case scenario, which is obviously weighted much higher, assumes an 8.5% GDP contraction in South Africa. In Africa Regions, clearly, there is also a contraction priced in on our bear case scenario across the markets, and this is on a weighted average basis, that is at 3% GDP contraction in Africa Regions. That's the first question. Maybe I can just continue on this third and fourth questions, then I can hand over to Zweli, I don't know if that's in order. James, you asked on the third question the impairment on NBOL. So it's completely impaired for South Africa. So there's nothing left on the books for South Africa. But clearly, and I think I said that in my commentary, New Business Online is still being used by our clients in Africa regions, and we have not impaired the technology there. Then the third point, James, on -- or fourth point, your fourth point on ICBCS. The pace recoveries are uncertain at this point in time. The matter is in the courts, and it's only going to be heard in April next year. So we'll probably in a year's time be able to give you some better guidance on what's happening on pace recovery. But certainly, we are going to be contesting that recovery in the courts next year in April.

Zweli, you're next.

No, I can [ answer ] gladly. If I can just respond to James' question on the collections. If we looked at pre-COVID as the benchmark, their clearly evolving [ ECM ] actually disrupted us from a collections perspective. Social distancing and trying to accommodate our collectors in different environments, that took quite a bit of time with negative impact, obviously, on collections. We did, however, outsourced some of the collections work. And we also got to assist our people from working from either different sites or from home. So the consequence of that is we've been seeing 2 things. The improvement in what [ budget ] is coming to the customers' accounts, which means they're getting better and better, and the collections is continuing to improve very nicely. So month-to-month performance since April has been on a positive trajectory. And we, therefore, expect that, that will have an impact, obviously, in how we look at impairments.

Sorry, Zweli, if I could follow-on there. Could you perhaps give us some context on by when you expect your collection process or levels to be at a more normalized level?

Well, James, that's a function of quite a few things. Because a critical driver in successfully collecting is, first, people must have the income into the account. To the extent that the opening up of the economy improves that, we have got, from an operations point of view, we stand ready to deliver the under-collections insofar as we have got enabled our teams now to work from home, driving collections. The only question that -- really that is left is, what is going to be the sustained positive impact on customer revenue of the various levels? We're now in level 2, and one assumes that that's going to be better, and therefore, our collections must get better month-on-month.

Operator, any further questions?

You have a question from David [indiscernible].

Just got 2 questions. First is just if you could provide a bit more detail on the advantage growth in CIB. It seems in Standard Bank growth has been much higher than peers based on BA900 data. If you can just talk more about that. And then the next question just is when do you expect credit impairment charges to peak?

Kenny, I think the first one is for you and the second one is probably better answered by Arno. Do you want to go, Kenny?

Well, thank you very much, Sim, and thanks for the question. The advances growth in CIB cut across all 3 of our businesses, with the main driver being the clients accessing their facilities, particularly at the peak of the sort of lockdown. The actual new loan origination slowed down a bit between March and April, even though we started to see that they're returning slightly to normality around about May and June. But the biggest driver is the actual utilization of existing lines as well as lift.

Okay. I can then answer the second question. The CLR, when that's going to peak. The guidance we've given at the moment is that the CLR may exceed the global financial crisis CLR, which is 160 basis points, and you can see we're currently over that. David, we cannot, at this stage, give you an accurate measure of when that's going to peak. That depends on the various scenarios and the various outcomes we're going to be running. But we continue to expect a higher CLR, obviously, going into the rest of the year and early next year.

Thank you, Arno. Operator?

We have a question from Harry Botha also of Avior.

Just a question for Arno on the PBB client relief provisioning. It looks like stage 2 -- sorry, stage 1 and stage 2 coverage [ seemed ] fairly low in South Africa, especially if it's compared to Capitec and other peers' trading updates. You mentioned the discussion, but could you -- could this coverage increase dramatically in H2 as we do start to see some repayment experience, Q3?

Yes. Obviously, Harry, it's difficult to understand what other peer banks have done. We've noted, obviously, the sales sense announcement overlays and so on. Based on our modeling and our calibrations, we do think we are appropriately provided for in stage 1 and stage 2 for the client relief [ put further ], and we are appropriately covered as well. I didn't quite understand your second part of the question for the rest of the year. What are you implying there?

Just essentially, if it changed quite dramatically, that provisioning, in the second half of the year as you do start to see customers essentially start paying the debt again as opposed to being in debt there.

Yes. We have seen a fairly large portion of our client base really starting to repay again, and there's been a good payment history on that. We've got the data, which I'm sure is ready to give you on hand, maybe even in the one-on-one discussions. I think there's a lot of detail around that. But at this stage, we do not expect a dramatic change in our modeling and in our forecast, the provisioning levels, which we've started to put in place.

We have no further questions.

Thank you, operator. Sarah, can we go to you? Are there any questions online?

Yes. Thank you, Sim. Can you hear me?

Yes, we can.

Thanks. This question is from Warren Thomas Thompson. What percentage of SBSA's gross loans and advances have been restructured or rolled post June? Perhaps the question for Zweli.

Yes. Sarah, when we started, we actually gave payment holidays for a period of 3 months. And that was obviously predicated on our assumption that things will gradually improve. But as we all know, they have been greatly improved, but not during COVID periods. So in SA, we had ZAR 107 billion that was given as relief to clients. And as at June, we went back to clients, notably, and we asked them to -- those who are still in a bad position financially, we set them approaches so that we can reconsider whether we extend the period or not. And 50% of our customers asked for further extension. And very interestingly, when you look at of the 50% that did not, the repayments are at very, very high numbers. So we're looking at roughly about 92% of customers paying back, those who did not ask for extension ahead. So we believe that that's a good outcome, and we'll continue to manage this portfolio a little bit closely.

Thank you, Zweli. The next question is from Chris Steward, one for Arno. Could you split the ICBCS profits between insurance recovery and operational performance?

Chris, good to hear from you. I did show it in my slide deck, Chris. I know the slide sequence was slightly out of sync with the wording. Apologies, we have a technical matter there. The split is as follows, I'm just paging forward to that. Operational profit was $45 million for the 6 months. Aluminum recovery on Qingdao Aluminum was $25 million, totaling $70 million.

Thank you. Perhaps next one for you, Arno. [ Jared Spheres ]. In your prospects summary, you state that a final dividend has not been ruled out. Can you provide any color on that?

Yes. With respect to SARB's guidance note 2 of 2020, which guides us not to declare a dividend. We will have to assess and talk to the SARB on if a further dividend can be declared for the final dividend or if that will be bespoke later. I think you can see from a capital point of view, we are in a sound capital position. So possibly, that is not a constraint from a capital point of view.

Thank you, Arno. The next question is from Charles Russell. I'm quite surprised at your expectation of performance on the client relief portfolios with 2.5% of provisions. Could you perhaps elaborate on this?

Zweli, do you want to comment on that?

Yes. Arno, let me comment on it. The process that we followed in thinking about provisions was clearly informed by our modeling. First, we have got a very, very robust model approval process in the bank. And what that model should do is to [ not to ] predict very, very closely what is likely to happen in [ client relief ]. So we went through that process. But what we also did is have a forward-looking view in the input as to how we thought about the model. In the process of doing that, we followed -- first, we did D3 dive from SARB with -- to get to that. And we calculated using our models, what it looks like, what the future might look like. And we came up to the levels of provisions that Arno discussed earlier. And over and above that, we took into consideration the economic prospects, which are not good. The in-house view is that GDP is likely to contract by 8.5%. We took that into consideration. And then we overlaid and came up with the forward-looking view that Arno discussed earlier. So in our view, knowing what we know -- and I underscore it, knowing what we know and having used this robust models, we believe that we are appropriately provided. And if the data changes for the worst going forward than our assumptions, of course, we're based on the -- based our decisions on what we know. Arno, I don't know if you want to add something.

Yes, just 1 or 2 more extra points, Zweli. Thank you very much. So please bear in mind that the clients who were entered and given restructuring terms were all performing. It was a criteria that were all performing at the time of providing the restructured terms. And as I indicated in my narrative earlier on today, hence, the coverage is likely to be expected to be lower than the base portfolio, where a portion is obviously not performing. The other data point, Jared, is that what Zweli mentioned earlier on, all those clients who've started paying again, as Zweli pointed out, 92% of them have been paying on time now and this is at the start. So I think that is tracking our expectation. And then the third thing, so you would have noted in my discussion I did point out that we've got additional ZAR 500 million overlay at the center, management overlay. If the situation deteriorates beyond what we have modeled, what we have expected, we do have additional buffer, which we feel and the Board feels comfortable to cater for that.

Thank you, Arno. We could move to [ Vincent Antone Raj's ] question, it's one for Kenny. Kenny, could you comment on the provisioning, the CIB provisioning, in particular in relation to the real estate and consumer sectors?

Thank you for that question, [ Vincent ]. Because of the lumpy nature of our exposure to individual names and the fact that our client base is fairly manageable, we do a detailed analysis of each and every client and before we decide whether a provision is warranted, what collateral is available, what plans have been put in place, when are they likely to yield specific results. And we have followed exactly that process with regards to the provisions that we've made. We have also done a detailed review of each of our exposure in the various sectors, including the retail sector as well as the real estate sector. And we are comfortable that having done the detailed analysis, both at a sector level as well as an individual client level, that the provisions that we have made are adequate under the circumstances. They are based, in fact, sound accounting principle as well as what we consider to be appropriate. Of course, that is an ongoing process. The lumpy nature of our exposure is such that if the situation was to deteriorate fairly rapidly within a specific sector or a specific client, the picture could change fairly rapidly over a short period of time, but we are very close to that situation. And at the moment, we're fairly comfortable with what we've provided for them.

Thank you, Kenny. One more question for you. With regards to trading profits. Obviously, strong in the first half. Do you expect these will be repeated in the second half?

We are pleased with the strong trading revenues that have come through from our global market business. The circumstances that created opportunities for excellent trading revenues in the first half of the year have abated somehow. [ Stock ] vendors have approved, the rand has pulled back. We are starting to see the plateauing of the various interest rate reductions that were being introduced by various regulators across the African continent. So we think that the situation has changed, and we no longer have as much volatility as we had in the first half of the year. As a consequence of that, we're likely to see a slowdown or a deceleration in the revenue growth within global market. But it will still be, I think, a decent second half of the year. And because of the momentum that has been created in the first half of the year, we think that has given us sufficient cushion to see as through for the remainder of the year.

Thank you, Kenny. I've got 2 questions from [ Kim Hunan ]. The first one for you, Sim. Did the SBG execs made salary sacrifices towards the Solidarity Fund?

[ Kim ], the SBG execs have made contributions to various charities in solidarity with various communities as a general proposition. And secondly, yes, executives have also made contributions to the Solidarity Fund, and we just have not made those public. So the answer is an emphatic yes. And I want to emphasize that the sacrifices went well beyond the requirements in terms of what the CEOs have committed to following the President's lead. The amounts involved are large, we're just not going to make them public.

Thank you, Sim. The second question is for Arno. Can you provide some insight with regards to paying preference dividends in the second half of 2020?

[ Kim ], good to hear from you again. We will be paying preference share dividends now, and we are likely to pay them again in the second half. The SARB guidance not does not apply to preference share dividends, it only applies to ordinary dividends. And we have the capital resources available to pay for those dividends on preference shares. So the answer is yes.

Thank you, Arno. One question from [ Stuart Bold ] for Zweli. Can you comment on how much you've lent in terms of the ZAR 200 billion government guarantee lending scheme?

Sorry, Sarah, I didn't quite get the last piece of the question. How much share did we lent...

It's actually guaranteed scheme.

Yes. Thank you, Sim. We actually approved about ZAR 8.1 billion, but we have paid out just below ZAR 2 billion because you approved and then there are conditions that must be met, you must contract with the customers. So this gap between the approval and the payout, so that's how much we've paid. And the way we've worked with it is make customers choose which of the solutions they want to go for. If they want to go for the government guarantee, we have to take them through the process, and that's where we're at.

Thank you, Zweli. The last question is for Arno. Could you comment on your capital outlook for the rest of the year?

We expect the capital outlook to continue to remain robust across all the markets in which we operate.

Thank you, Arno. Then that's all the questions for now. Thank you very much.

Yes. Thank you so much for conducting that process. That brings us to an end of today's proceedings, colleagues. Thank you so much for your time. Thank you for your support. Hopefully, we'll see you again soon, and hopefully, that will be in person. In the meantime, we wish you all good health and strength in the coming months. Bye-bye.

Bye.

Thank you.

Thank you, Arno.