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

Good morning, ladies and gentlemen. On behalf of everyone, all of us here at Standard Bank, thank you for joining us as we present our 2020 results. Before starting the results presentation itself, I'd like to take a moment to honor the memory of our colleagues who have lost their lives in the pandemic. Our thoughts are with them and with their loved ones. I also sincerely thank our colleagues who continue to demonstrate immense courage, discipline, dedication every single day as they serve our clients. If you are joining us on Bluejeans and would like to ask a question, please do so by clicking the Q&A link, which is on the right-hand side of your screen. 2020 was an unprecedented, highly complex and very demanding year for all of us. But one can summarize its essence for the Standard Bank in just a few simple points. We continued to manage the pandemic using the 3-phased approach that we described during our interim results presentation last August, which is: respond to the immediate threat, recover and facilitate the return to growth, and reimagine and adapt to the new normal. First, we did everything in our power to keep our staff safe and to support our clients and our communities. Second, 2020 demonstrated the strength of our franchise. The sharp decline in the group's profits is almost entirely the result of the pandemic and our prudent response to it. We delivered a resilient top line performance with overall banking activities revenues falling by just 2%. The remarkable revenue performance of Africa Regions partially offset the declines in the Standard Bank of South Africa, which was severely impacted by the pandemic lockdowns. Third, we stood by our clients to support them through the pandemic with our balance sheet when they needed it most. This meant that PBB's gross loans and advances grew relatively strongly by 7% overall and that we gained market shares in South Africa. Arno will explore these outcomes in more detail shortly. So here, I'll just point out that as we have seen previously, in times of stress and great uncertainty, there is inevitably a flight to quality. By providing excellent service, we will aim to ensure that this flight translates into a permanent increase in our market shares. Fourth, we have emerged from 2020 as sound as ever. Despite the increase in our balance sheet and risk-weighted assets, our common equity Tier 1 capital ratio remains very strong. Even after absorbing credit impairments of over ZAR 20 billion. Our liquidity provision remained -- our liquidity position remains equally strong. With our liquidity coverage ratio at 135%. We are very well placed to support the recovery, and we stand ready to fulfill our purpose in the long term. Finally, despite all the challenges that the year threw at us, we made good progress in modernizing our group so that we can continue to serve our clients with excellence. We became considerably more agile and notably more digital. In fact, with a particularly productive year as measured by the accelerating pace of our innovation in service of our clients. We also had a good year in 2020 in terms of systems robustness and reliability, marred, of course, unfortunately, by the very regrettable incident in South Africa on Thursday of last week. I'd like to apologize to our clients for the inconvenience and the distress that this unfortunate incident caused them. We reversed all the incorrect debits and charges within a day. These are the key takeaways. I'll now turn to some of the detail. We provided support to our clients, employees and communities in many ways. Looking at our clients, individual and SME clients took up around ZAR 130 billion impairment relief offered by the group, while our corporate clients accepted ZAR 25 billion of restructurings for their businesses. We continue to expand our range of digital solutions, and our clients embraced the digital tools that we provided them. For example, in South Africa, clients made more than 1 million transactions worth ZAR 250 million on 600,000 virtual cards, and we saw an increase in digital onboarding of new accounts. In Africa Regions, digital adoption levels are high, with 77% of onboarding being completed digitally. Looking at our employees, a group-wide survey showed that 95% of our employees had adapted well to working from home, and 89%, were proud of our response to the pandemic. Over the year, employees embraced the online learning resources that we offer to improve their skills for this digital age. Over 90% of colleagues used our online learning platform to complete 2.7 million learning items. In support of our communities, the group spent over ZAR 170 million in total on corporate social investments in 2020, of which ZAR 80 million was allocated to education projects in line with our decision to enable existing projects to adapt to the pandemic. ZAR 65 million was allocated to respond directly to COVID-19 in South Africa. ZAR 27 million of this allocation had been spent by the end of 2020. In South Africa, OneFarm Share linked farmers with surplus produce to NGOs providing food to people going hungry because of the economic damage caused by the COVID-19 pandemic. We were pleased to be recognized as the Best Bank for Sustainable Finance in the Global Finance World's Best Investment Banks 2020. Turning to our results for the year. There is no getting away from the unpleasant facts that group headline earnings were down 43%, and group return on equity fell to 8.9%. By far, the largest cause of this outcome was the dramatic increase in our credit loss ratio from 68 to 151 basis points. But the pandemic did not damage the underlying strength of this group. As mentioned previously, our common equity Tier 1 ratio remained robust, providing us with much needed flexibility and capacity during the year and going forward. As you have seen, the pandemic did not prevent us from helping our fellow Africans and it did not stop us from making a lot of progress in executing our strategy. Most important, it has not stopped us from being ready to support and accelerate the recovery that lies ahead. We recognize that many of our shareholders rely on dividends for an income, balancing the uncertain economic outlook, the importance of maintaining our robust capital position and our focus on allocating more capital to Africa regions and other revenue-enhancing growth opportunities, we declared a dividend of ZAR 0.240 per share. Before I hand over to Arno to go through the results in a great deal more detail, I would like to make a few points on the strength of our franchise. CIB's resilience is underpinned by its diverse and growing client franchise. Leveraging its local knowledge and market-leading expertise, it grew revenue by 5% to over ZAR 40 billion. Pleasingly, PBB South Africa's active client numbers stabilized in the second half of the year as actions taken in late 2019 and early 2020 started to bear fruit. Digital transaction volumes grew strongly, and clients made use of our convenient online mobile and virtual solutions, for example, virtual cards, tap and pay, and our Shyft Foreign Exchange and LookSee home service solutions. PBB Africa regions continued to grow, reaching 5.4 million active clients by the end of the year, a growth of 7% year-on-year. In the uncertain environment, the business benefited from the flight to quality, driving up deposits and our market shares. At the end of 2020, we were ranked as one of the top 3 banks by Assets and Deposits in 10 of the 14 countries in which PBB operates. The wealth franchise remains sizable, and it continues to be a growing business with approximately ZAR 460 (sic) [461] billion of assets under management and 3.6 million active insurance policies. Wealth continues to provide a wide area of short and long-term insurance and investment solutions, generating attractive capital-light returns. I will now hand over to Arno for a more detailed look at the financial outcomes.

I'm now going to take you through the financial results for the 2020 financial year. I'm starting on Slide 11 with a summarized group income statement. As you can see here, NII reduced by 2% year-on-year. Strong balance sheet growth was more than offset by shrinking margins over the period. Noninterest revenue declined by 1% on the period as trading revenues slowed in the second half. You can also see here that costs were well contained at a growth rate of 1%, but that the cost-to-income ratio rose to 58.2%, given negative jaws. Credit impairment charges of ZAR 20.6 billion were 2.6x higher than the prior year, reflective of the very difficult environment and result in a credit loss ratio of 151 basis points. Consequently, banking operations reported headline earnings of ZAR 15.7 billion, and this is down 42% on the prior period. After accounting for our investments in ICBCS and Liberty, group headline earnings were down to ZAR 15.9 billion, a decrease of 43% on 2019 and resulting in a group ROE of 8.9%. The year-on-year decline in profit attributable to ordinary shareholders was larger than the decline in headline earnings. And this is largely due to impairment of certain IT intangibles in the first half of 2020, as well as a net negative reserve movement on the sale of ICBC Argentina and has also occurred in the first half of 2020. [indiscernible] which most of you will be accustomed to illustrates how we think about growth, resilience and returns to drive shareholder value. In the slides that follows, I will take you through the drivers of their performance. Slide 14 sets out the strong balance sheet growth, which supported NII. As you can see here, average interest earning liabilities grew by 16% in 2020. CIB saw very strong growth at 17% as clients held onto liquidity in uncertain environment, and we saw flight to quality in some markets, as Sim has indicated already. PBB customer deposits grew by 14%, with strong growth in savings and investment products. Our offshore operations in the Isle of Man [indiscernible] increased their deposit base to GBP 5.6 billion and continued to provide the group with access to hard currency funding. Average interest-earning assets grew by 14% in 2020. CIB average loan growth was a strong 14%, mainly driven by corporates accessing short-term liquidity, some of which they repaid towards the end of 2020 as clients managed their debt levels down. Given strong loan growth late in 2019 and the repayments in 2020, you will notice in our booklet disclosure that CIB year-end loan balances are lower than 2019 year-end balances. In PBB, average loan growth was 6% with strong growth in digital disbursements of unsecured loans and a recovery in demand in the second half of 2020. Turning to net interest income and margins on Slide 15. As you can see here, NII declined by 2%, as average interest-earning assets grew by 14%, and margins declined by 61 basis points to 370 basis points. Across our network of operations, weighted average interest rates were over 200 basis points lower than in 2020 -- than in 2019, apologies. This significant rate reduction impacted margin as follows. Endowment impact from lower NII earned on capital and funding balances reduced margins by 27 basis points. And this is the equivalent of ZAR 4.5 billion in net interest income. We also had the base rate impact from lower NII earned on average interest-earning assets and average interest-bearing liability balances. Given rate adjustments, we have shown this separately in this presentation, given its significance to the movements in NII. These effects would previously have been included in the pricing impact. Pricing pressures contributed a further 5 basis point reduction to the decline in margins as we experienced competitive pressures. As can be seen in the half and half analysis at the bottom of the slide, margins declined in the second half, and we believe that this is now stabilized at 353 basis points. Moving to Slide 16, which details the main components of noninterest revenue. NIR reduced overall by 1%, with fees shown on the left-hand side down 4% and trading shown on the right-hand side up 15%. Fee and commission income was impacted by lockdowns in the first half and recovered somewhat in the second half. The trend of customers choosing lower fee-generating digital transaction channels continues to adversely impact fee income. Elevated market volatility drove increased client activity and, in turn, trading revenue growth. Trading revenues slowed in the second half of 2020 to more normalized levels as volatility levels subsided. Turning to loans advances on Slide 17. Across the top of this slide, you can see loan formation and staging, starting with Group on the left, PBB in the middle and CIB on the right. As you know, under IFRS 9, Stage 1 loans are performing loans, Stage 2 loans have experienced a significant increase in credit risk and Stage 3 loans are considered nonperforming and are consequently impaired. Across the top of the slide, you can then see that since the beginning of the year, Stage 2 and Stage 3 loans have increased as a proportion of the loan book. And of course, this indicates higher stress levels in our portfolios. Stage 3 loans now amount to ZAR 72 billion and have increased to 5.5% of the total loan book. This is up from 4.6% in June and 3.9% last December. Across the bottom of the slide, you can then see the corresponding buildup in balance sheet provisions. You will note that provisions have grown faster than balances in all instances. And therefore, overall coverage ratios have continued to increase from 2.9% to 3.3% to 3.8% as of December 2020. On Slide 18, we show the formation of balance sheet credit provisions in 2020. Provisions started the year at ZAR 35.3 billion and grew to ZAR 46.3 billion by the end of June as the impacts of the pandemic took hold. In the second half of the year, the rate of growth slowed, and year-end provisions were ZAR 50 billion, a total of 42% increase year-on-year. The provisions raised in each half are reflected in the large gold bars. In the same analysis for PBB, also shows a slowdown in provision buildup in the second half of the year. As you can see here, by year-end, PBB's total coverage ratio was 5.3%, and this is up from 4% a year ago. As you are aware, and as Sim has already referred to, during 2020, we provided extensive relief to our PBB clients in the form of payment holidays. At June 2020, the PBB South Africa active client relief portfolio amounted to ZAR 107 billion. At that time, that was 18% of the book. The relief portfolio subsequently peaked at ZAR 118 billion. And as can be seen in the chart on the left of this slide, as of December, ZAR 19 billion of the portfolio was actively receiving relief, just 3% of the portfolio, down from 18%. The Active Relief portfolio comprises predominantly secured mortgage balances. Similar downward trends can be observed for the PBB Africa Region's relief portfolio where the active relief portfolio has reduced to ZAR 2 billion or 2% of the total book, and this compares to 12% of the book as of June. Slide 21 analyzes that PBB South Africa portfolio in a little more detail. Starting at the top of the bar with the active relief portfolio of ZAR 19 billion. These are loans where the customers have requested an extension to the payment holiday, which we have exceeded to. The risk profile of this book has clearly deteriorated, especially where payment holidays have now extended beyond 6 months. This portion of the portfolio is deemed to be distressed and accelerated into Stage 3, with significant increases in coverage ratios. On the expired relief portfolio of ZAR 99 billion, these are loans where payment holidays were granted but have now expired, and customers have -- are expected to have resumed payment. More than 90% of this portfolio has resumed payments, either partially or full. The coverage ratio on this book, you may note, is lower than the base portfolio, given the portfolio mix tilted towards secured balances and also the performing status of this book. On the base portfolio of ZAR 512 billion, these are loans that were not granted relief and are expected to have been paying throughout 2020. And this book, forward-looking provisions have remained stable since June. Increased provisions were driven by book growth and additional intuitive overlays to cater for potential risks such as retrenchments, risks in the SA COVID-19 loan guarantee loans, potential probability of default and loss given default deteriorations and also the impacts of the December 2020 and January '21 lockdowns in South Africa. Provision coverage on Stage 1 loans remain elevated at 6%. On Slide 22, we have provided the same level of detail for PBB Africa regions. And as you can see, the trends are similar, where the active relief portfolio is reducing as a proportion of the book. In CIB, balance sheet provisions increased substantially in the first half of 2020 and increased by a further 5% in the second half. The increase in the -- the increased provisions in the second half were largely in the Stage 3 portfolios with the outlook of preexisting NPLs deteriorated. Robust risk management strategies, including restructures and reductions of client debt levels, allowed Stage 1 provisions and Stage 2 provisions to reduce from elevated levels in June. The total credit impairment charge on loans and advances increased to ZAR 20.2 billion. On Slide 24, we have shown the first half and second half splits as well as the business unit contributions to this charge. The CIB charge was 2.6x higher than 2019, driven mainly by Stage 3 NPLs as the outlook for specific names deteriorated due to worsening markets and economic conditions. The second half charge for CIB was 24% lower than the first half. The PBB charges were 2.5x higher than 2019, and as can be seen here, second half charges were 15% lower than the first half. And as you can also see, in addition to business unit modeled impairment charges, we have maintained a central provision amounting to ZAR 500 million as an additional buffer to cater for the realization of a more bearish outlook than our models are catering for. Moving on to operating expenses on Slide 25. Operating expense growth was well contained at 1% for the year. Staff costs were down 1% as annual salary increases were offset by lower head count and lower performance-related incentives. Other costs increased by 4%, driven primarily by higher IT costs and also by higher professional fees. In 2020, we purposefully continue developing and rolling out innovative digital solutions to improve service efficiency and client experience in line with clients' expectations. In addition, the group incurred COVID-related business continuity costs during the year, including employee work from home costs. Over the 4-year period shown here, total costs have grown at a compound annual growth rate of 4%. The largest component of our cost base, the staff costs, have grown by 3% per annum over the 4-year period, benefiting from the reduction in headcount. IT costs, as you can see here, the bar second from the bottom, have grown at 13% over the 4-year period. And this evidences our continued investment in technology. Moving to capital liquidity. Slide 26 provides an overview of the group's capital stack and common equity Tier 1 ratios over the last 5 years as well as our liquidity ratios. Despite the very difficult operating environment and shock to earnings in the period, you can see here, the group has maintained robust capital and liquidity positions. Our capital levels have increased to just under ZAR 200 billion with a strong IFRS 9 phase in CET1 ratio, common equity Tier 1 ratio of 13.3%. The group's liquidity positions remained strong within its stable funding ratio in excess of 100%. The groups Basel III liquidity ratio amounted to 135%, well in excess of the temporary reduced minimum regulatory requirements of 80%. As we saw on the previous slide, the group ended the period with a common equity Tier 1 ratio of 13.3%, and this was down from 14% in the prior period. The waterfall chart you can see here provides a summary of the key drivers of the decline of this ratio. As you can see, the increase in risk-weighted assets was the key driver. Risk-weighted assets grew by 12% for the year with strong growth in the first half and a decline in the second half. Lending book growth and deteriorating credit ratings drove the increase in risk-weighted assets, predominantly in the first half. The group's return on equity declined to 8.9%. Shareholders will recall that no dividend was paid in September 2020, in line with the regulatory guidance. This guidance, as you may be aware, has subsequently been updated, and our Board has approved the declaration of final dividend of ZAR 0.240 per share, and this represents a payout ratio of 24% on 2020 headline earnings. I'm now turning to the business unit performance, starting with PBB on Slide 30. PBB headline earnings of ZAR 6.4 billion can be broken down into 3 regions. PBB South Africa headline earnings were down 65%, where large impacts of lower interest rates and lower lockdown activity levels were born. PBB Africa regions headline earnings dropped to ZAR 821 million as impairment charges more than offset ongoing franchise driven revenue growth. Wealth International headline earnings dropped to ZAR 687 million given the endowment impact of lower interest rates in USD and GBP denominations. CIB generated headline earnings of ZAR 10.6 billion in 2020. These earnings can be analyzed by product. Global markets increased earnings by a strong 61%, driven by client flows on the back of market volatility. In Investment Banking, the adverse macroeconomic environment drove higher impairments and equity investment portfolio write-downs. This business generated ZAR 1.6 billion in headline earnings, which is down 59% on the prior period. TPS were down 37% as the negative environment impact and competitive pricing pressures impacted margins. Slide 32 shows PBB and CIB summarized income statements and illustrates the diversification benefits of our client franchise. PBB results were heavily impacted by the pandemic economic slowdown and results and uncertainty as well as a lower interest rate environment. This is reflective in shrinking revenues and significantly higher charges for credit impairments. Headline earnings of ZAR 6.4 billion were 61% lower. CIB was somewhat shielded by our strong trading performance, particularly in the first half of the year. Strong positive draws in CIB assisted pre-provision operating profit to grow by 9%. Headline earnings of ZAR 10.6 billion was 6% lower than 2019. ROE was a strong 15.7%. Moving to our regional performance on Slide 33. This slide illustrates the geographic diversification benefit of our banking franchise. In South Africa, the sovereign downgrades, interrupted power supply, the onset of the pandemic and the strict lockdowns that followed strangled an already flailing economy. The Standard Bank of South Africa's headline earnings declined 72% to ZAR 4.7 billion as lower revenues and higher charges for credit impacted this entity's ability to grow. This is in contrast to the group's Africa Regions business, which proved resilient, delivering headline earnings growth of 9% or 4% on a constant currency basis. West Africa's excellent trading performance and positive jaws delivered 21% growth in earnings in constant currency terms. The 6 top contributors to Africa Regions headline earnings remain Angola, Ghana, Kenya, Mozambique, Nigeria and Uganda. This slide shows a little more detail on regional performance. In South Africa, the negative endowment impact of lower rates, slowed activity levels during lockdown, and equity valuation losses all impacted revenues, which were down 7% for the period. The benefits of cost rationalization initiatives in 2019 were evident as costs reduced by 2% year-on-year. Credit impairment charges in South Africa SBSA of ZAR 17.1 billion were 3x higher than 2019 levels. In Africa Regions, NII benefited from strong deposit growth from a growing client franchise and a flight to quality in the period under review. Noninterest revenue was driven by a strong trading performance in most markets, and as I mentioned already, and particular in Nigeria as well as in Angola. Operating expenses grew by 9%, and positive jaws were delivered resulting in preprovision operating profit growth of 12%. Credit losses were 36% higher than in 2019 with Botswana and Malawi, both in Central and Other, benefiting from recoveries in the prior period. Africa Regions ROE, as you can see on the slide, was just under 19% for the year. You will have seen Liberty's results announcements and presentations on the 4th of March. Liberty's performance, as you would have noted then, was negatively impacted by lower earnings across the insurance business as well a weak performance -- as well as weak performance in the shareholder investment portfolio. Liberty South African Asset Management business STANLIB reported flat earnings for the period and an increase in net external third-party clients cash inflows. As you are aware, Liberty has created a pretax ZAR 3.1 billion COVID-19 pandemic reserve to cover an expected increase in mortality and retrenchment claims, and this impacted profitability significantly. Liberty consequently reported a headline loss of ZAR 1.5 billion, compared to a profit of ZAR 3.2 billion in the prior period. After adjusting for treasury shares, the group's [ 57% ] share of the loss amounted to ZAR 651 million. We are pleased that Liberty's operations remain financially sound and well-capitalized with a solvency capital requirement cover ratio of 1.8x. As reflected in the graph on the left-hand side of Slide 36, ICBC Standard Bank Plc recorded an operating profit of $88 million. The entity also benefited from an insurance recovery related to aluminum related losses, the business incurred in Qingdao in 2015. The 2020 results for the group of an ZAR 881 million profit is much improved on the loss experienced in 2019. Where, as you may recall, an impairment on a single name drove the business to a significant loss. I'm now going to turn to our outlook, starting with the financial outcomes in 2021. We remain in the midst of a pandemic, and our outlook remains uncertain. We expect global growth and a global recovery spurred by China and vaccine rollouts underway in the Northern Hemisphere countries. At home in Africa, we remain cautious about the impacts of further waves of the virus and ability of sovereigns to stimulate growth rates. Slide 39 then sets out our base case outlook for the group's financial results in 2021, and this remains subject to the timing and the pace of recovery. On revenue, balance sheet growth should support NII and margins are expected to stabilize at or around levels experienced in the second half of 2021 -- or second half of 2020. High activity levels should support NIR growth. However, this remains at risk from further lockdown disruptions. And I remind you that the first half of 2020 creates a particularly high base for trading revenue. On costs, in order to deliver on increasingly digital demands, IT spend is expected to continue to grow above inflation. Total cost management will remain a rigorous focus with below weighted average inflation cost growth as our target. On credit impairments, prolonged downturns will place additional pressure on weaker countries, weaker sectors and clients. Particularly leverage corporates and certain South African state-owned entities. Credit impairment charges are expected to decline from 2020 levels. However, the credit loss ratio is expected to remain above the group's historic through the cycle range of 70 to 100 basis points to remain above that range. Recovery of the group's key metrics, namely headline earnings growth and ROE, will take some time. And the path is unlikely to be linear. However, we expect earnings growth and a higher ROE in 2021. And dividends per share will be higher in 2021 as earnings recover. ROE remains our most important indicator of shareholder value. While we are not yet in a position to refresh our medium-term targets, we have illustrated on Slide 40 a likely path to return ROE above cost of equity levels. The management's actions we are focusing on over the medium-term include sustainable growing revenues and costs, which includes a focused reduction of the group's cost-to-income ratio. Returning credit losses to our through-the-cycle range of 70 to 100 basis points. And importantly, reallocating capital to high-growth markets and segments and solutions as well as investing further capital-efficient businesses. Of course, any rises in interest rates will be helpful to claw back [ and down ] the impacts that we have experienced during the year. As the year progresses, we expect more certainty. We intend to hold an Investor Day in the third quarter of this year. And at that time, we will update our medium-term financial targets and provide more detail on the management actions mentioned on this slide. Until that time, we are not in a position to provide more detail. Thank you. I will now hand back to Sim to conclude the presentation.

Thank you, Arno. I will now discuss our strategy and how it is evolving over the next few years as we enter the post pandemic world. It's probably uncontroversial to say that the pandemic has drawn a sharp dividing line across our lives. From now on, we will now think in terms of before and after COVID. Things may well return to normal, but they will never be exactly the same. We realized this quite early on last year and began to think about how our strategy would need to evolve to ensure that we remain relevant and competitive in this changed world. In this closing section of our presentation today, I'll cover 3 things. Firstly, I'll take you through some of the main inputs into our thinking; second, I will discuss how our strategic priorities have evolved in light of these inputs; and third, outline the practical changes we have made in order to implement our post-pandemic strategy. The first input into our thinking are the current trends influencing our business. The first trend that we see is the likely lower-for-longer evolution of interest rates, which argues for continued expansion into Africa, beyond South Africa and into capital-light financial and ancillary services. The second trend, influencing our business as you can see in the middle of this slide, is that current usage patterns reinforce the urgency of being a truly digital financial services group. Our customers are already very digital, and we will continue to invest to develop and deliver a range of services and solutions to meet and indeed to exceed their expectations. These expectations increasingly include being seen and understood as a unique individual and be offered solutions that extend beyond traditional finance. Lastly, on the right, the pandemic has also forcefully reminded us of our dependence on each other and on the environment. And we will undoubtedly increase -- and we'll see an undoubted increase in the demand for financial products and services that support a [ just ] transition to a more inclusive and sustainable economy. We are already a leader in sustainable finance on this continent, and we will continue to partner our clients in their journeys towards greater sustainability. I'll say a little bit more on this shortly. The next set of inputs we considered were medium and long-term trends in Africa. As illustrated on the left-hand side of this slide, African mobile penetration has increased by 2.3x over the past decade, and the number of Internet users has increased by 3.6x. The GSMA expects that 50% of Africans will have a mobile phone within 5 years. They further predict that by 2025, there will be 475 million mobile Internet users in Africa. One doesn't require a crystal ball to predict that many, if not most, of these people will prefer to access financial services online. We, therefore, need to become a truly digital business and to make the necessary investments to do so. As you can see in the middle of this slide, the composition of the world's population is changing. Over the decades to come, we expect that Africa's population will continue to rise quickly and that it will become healthier, better educated, more urbanized and more productive. It follows that we also expect that trade and investment flows between Africa and the major international finance centers will continue to increase. 20 years ago, [ began ] Africa Focus Financial Services group might have seemed unconventional. But with these trends in mind, over the medium and longer terms, it's going to become increasingly enviable. A third medium and longer-term trend illustrated on the right-hand side of the slide is that we expect consumer spending in Africa to grow rapidly over the next decade. We estimate that Africans will have over $5 trillion in annual spending power by the end of the decade. The final set of inputs into our thinking that I'd like to discuss today arise from taking a truly long-term view, a multigenerational view. We cannot hope to achieve permanent improvements in people's lives, unless additional income and assets are created in an environmentally and socially responsible way. For several years now, we've been explicitly committed to promoting sustainable and inclusive development. We are, therefore, committed to considering the environmental and social impact of our decisions and actions very carefully, taking all our stakeholders' views and preferences fully into account. Equally though, we believe that it will be unfair and unrealistic to ask Africans to put human development on hold. We continue to balance these perspectives, guided by our purpose, by our membership of the UN principles for responsible banking, by our commitments to advancing the UN Sustainable Development Goals and by the Paris Agreement's target to limit warming to below 2 degrees above pre-industrial levels in the context of a just transition. Sustainability is an area in which difficult trade-offs are inevitable. In order to find the optimal outcome for everyone concerned and for the generations to come, we consider all the data before us, thoroughly and fairly, and we take all stakeholders' interests and prospectus fully into account. We don't expect people to take our word for it. In line with global best practice, we will continue to increase the transparency of our decision-making and the details of our ESG reporting. For instance, from this year onwards, we will include a TCFD aligned report in our ESG report each year. We believe that we are making progress. For example, we scored 60%, up from 51% last year, in the SAM corporate sustainability assessment, well above the industry average of 39%. We were also pleased to be ranked 53rd Most Sustainable Company in the World by Corporate Knights, making us the only African corporation in the top 100. These 3 sets of inputs are reflected in our updated strategic priorities. Our purpose hasn't changed and won't change. The trends we see around us make us even more confident of our purpose. Africa is our home, we drive our growth. But we have updated and simplified our strategic priorities. They are: first, transform client experience using digital technology, of course, but not for its own sake and not exclusively. We aim to understand our clients as deeply and as empathetically as we can, and then to use our human skill and digital capabilities to help meet their needs and to enable them to achieve their goals. Second, execute with excellence. We define excellence to include delivering comprehensive solutions with maximum efficiency and total integrity. Third, drive sustainable growth and value. Here, we use sustainable growth to mean long-term and to mean environmentally and socially sustainable. For us, as I said, these 2 concepts are tightly and indeed necessarily linked to each other. These revisions to our thinking have immediately led to some very practical changes to how we serve our clients. As from the first of January 2021, we are no longer organized into 2 business units that you are familiar with: CIB and PBB. We are now primarily organized into 3 client segments. These are Consumer and High Net Worth clients, Business and Commercial clients and Wholesale clients. Each of these client segments is equally supported by client solutions, by engineering and by a specialized innovation capacity capability. The Client Solutions business is being set up to partner the 3-client segments and the group as a whole. It is very much a business in its own right and we'll focus on delivering innovative and cost-effective client solutions, which can be scaled across client segments and countries. And importantly, these solutions could also be sold to third parties to create new revenue streams and new opportunities. The engineering capability brings together all the infrastructure we use to deliver the group services. Their responsibilities include maintaining our physical infrastructure; running an efficient, stable, robust and secure technology stack; and providing comprehensive data management analysis and monetization capacities. Finally, we have created a new capability known as innovation to generate future-ready solutions and new business models. Here's a quick summary of the rationale for these changes. We have done this to provide our clients, from individuals to major corporations to states, with a comprehensive range of financial services and solutions in a seamless way without expecting them to navigate our internal complexities. Secondly, want to reduce time and cost to serve. And thirdly, in order to enable our organization to innovate much more quickly and efficiently in the service of our clients. We look forward to reporting our results for the first half of 2021 on the new basis in August. There are a lot of uncertainties in the immediate future. A great deal, of course, will depend on the trajectory of the pandemic as influenced by the pace and efficiency of vaccine rollouts. As we have said, we are cautiously optimistic that 2021 will be the year in which the world and, indeed Africa, start to emerge from the pandemic, but we recognize that we could be wrong. For the time being, therefore, until the trends are clearer, we'll continue to focus on keeping our employees safe, motivated and connected. We want to focus on supporting our clients as they recover, rebuild and explore new opportunities, and to transforming client experience and improving operational efficiency. If we are right that the pandemic is coming to an end, then we think that both Africa and South Africa and their economies will show signs of recovery this year. Beyond 2021, we expect that Africa's growth will continue to accelerate and deepen in the ways we've just discussed. We think that South Africa's medium-term growth performance will depend on the extent to which South Africans can release the electricity supply and the constraints around the electricity supply and make other governance and structural reforms. The pace of digitization and the extent of increased demand for solutions rather than products will depend to some extent on how the economy performs. But these trends also have a life of their own and the pandemic has sharply accelerated them. Let me stop there, and thank you for your attention, and we'll now turn to questions. For that purpose, I will ask Zweli Manyathi and Kenny Fihla to join Arno and I upfront here. As a reminder to everybody, please submit a question on Bluejeans. And if you want to do so, you'll do it by clicking the Q&A link, which is on the right-hand side of your screen, and the question will be submitted. So Sarah, do we have any questions?

Thank you, Sim. The first question is for Zweli with regards to the payment holidays. We saw the payment holidays declined quite considerably in January. Is that due to payments by clients or write-offs of client accounts?

Thank you, Sarah. It's actually a combination of both. Because as you will have seen in Arno's presentation, the sum of the payment holidays that have rolled into Stage 3 and that really is -- and we don't have performances to be -- obviously because we have to wait until the expiry of the period given to customers. For now, we have actually put aside Stage 3 impairments with debt coverage of 2.5 or 2.8 rather.

Thank you. The next question is from James Starke. Please, can you comment on the outlook for balance sheet growth across loans and RWA growth?

Well, we're looking for low single digits for loans and we're looking for mid- single-digit growth for deposits. That's what we're looking for at the moment.

Arno, could you comment perhaps from a group perspective in terms of the loan and RWA outlook?

I think we'll see mid-single-digit loan growth in PBB. CIB is obviously a little bit more uncertain. It's more dependent on the client demand. And James, I think you're asking the question. Similarly, RWA growth, we've seen the big uplift in terms of the PD and LGD deterioration in the first of last year, first half of last year. We don't expect that to reoccur. That's not in the base. And from now onwards, it's probably mid-single digit RWA growth.

Thank you. The next question -- 2 questions, additional questions from James. How does the second half performance of the group compare to the 2021 year-to-date performance, and do you expect further IT impairments in 2021 or 2022?

Yes. Thank you. Obviously, I cannot give the detail of the year-to-date performance, but I can say that we've had a good start to the year in January and in February. We have seen continued recovering client activities, but at the same time, James, we did also see the impact of the lockdown in December, January. So as this lockdown, where it's happened, they do certainly impact the client activity. But for now, the group is on a good footing into this year. In terms of IT impairments, we do not expect another large impairment as we did see in June last year. But we do apply our impairment policy on an ongoing basis. Every 6 months, we do impairment tests on our technology. And to the extent that we do have redundant technology and it's being replaced by updated technology, clearly, we didn't have to apply the payment test and possibly impair further technology. But nothing to the extent we've seen in 2020.

Thank you. The next question is from Chris Steward. The fourth quarter earnings looks a bit weak relative to the third quarter in 2020. Could you comment on whether this was driven by revenue or credit impairments? And how should we read this going into 2021?

Yes. Thanks, Chris. So there were some revenue impacts in the fourth quarter. Specifically, interest rates endowments. They were now flat for the entire quarter. There were still rate cuts in the third quarter. That's the one component. There also were a number of once-off revenue impacts relating to insurance payouts and leases and, Chris, maybe when we do meet on Monday, I think that maybe we can go into more detail on that. But that also impacted the top line. From a provisioning point of view, we did have additional intuitive overlays in December on the back of -- at that point in time, a worsening outlook going into Stage 3 lockdown. So we did also see some impact on that. Going forward, I think the question was about 2021 NII -- NIR growth. Low to mid-single-digit NII growth is what we expect. NIR growth possibly sort of low single-digit as well in that respect.

Thank you. And Arno, Sim, could you comment on ICBCS' profitability going forward? They had a good performance in 2020. Do you expect this to continue, particularly in relation to the $88 million of operational profit that they recorded in the 2020 financial year?

Perhaps let me go first and then Arno can pick up. I think the performance of ICBCS was right across the board and was driven by good activity on -- across all desks. We would expect similarly good performance during the course of 2021, but perhaps with less volatility than you saw in the previous year. And of course, I think implicit in your question, the profitability of 2020 was also attributable to the insurance claim that was paid out. Arno, do you want to add to that?

Yes, just one more thing, Sim. We obviously had heightened market volatility, which most global markets trading environments benefited from. But I can also assure the stakeholders that it wasn't due to a once-off, let's say, proprietary position, it was due to continued client flow, which is being rooted into that entity on the metal space, on the commodity space, on the fix [ disk ], et cetera. And good cost control as well.

Thank you, Arno. Going back to the payment holidays and collections, do you think that -- will the bank continue to extend payment holidays to clients into 2021?

Well, the bank will always consider this on the basis of merit. But for now, we continue to really look at the customers, we look at their stressed cash flow and we look at their sectors. So that is going to be done on a case-by-case basis.

Thank you. Kenny, moving to you. There's a question with regards to the commentary around the regulatory headwinds that were faced by the TPS business in Kenya and Nigeria and how they impacted the operational performance? Could you provide a little more color on that?

[indiscernible] challenges, thanks for the questions. We'll continue to prevail, particularly in Nigeria. And the business has adopted to managing those. We are, however, encouraged by some of the developments that have taken place in Nigeria recently, which are suggested that we may see some relief come to sort of the performance of the TPS as well as the global market businesses. But we remain sensitive to some of the regulatory challenges that we have to deal with in some of the African countries, and we've repositioned our businesses to be able to weather the storms appropriately.

Thank you. The next question is from Stephan Potgieter. Why is your dividend payout so low? And why is your guidance only to get back to the bottom end of your previous guidance range?

Stephan, when we think about our dividend, we obviously have to balance the uncertainty of the environment and the risk of further lockdowns and infection waves in South Africa as well as, of course, the possibility of other variants and ineffective vaccine rollout. So that's the macro environment, which remains very uncertain. The other consideration we take into account is our support we give to the clients and economies we serve in terms of extending balance sheet, and you would have seen that being quite strongly. So we would not want to compromise that. And then the third component is, Stephan, we do see opportunity for growth in Africa Regions, selected markets there, we'd like to invest further into those. And [ hence, we're ] carefully preserving our capital also for those growth opportunities, which we are confident on will deliver accretive ROE and shareholder value, way in excess of our cost of equity. So we think at this point in time, taking into account uncertainty, the growth opportunities and the support we have to give to our existing clients, this is the right payout ratio. It's 24% for 2020 earnings. In terms of the guidance of getting back to the low end of the dividend range. I think these are just very uncertain times still, and we prefer to give you more firm guidance when we have our Investor Day, as we indicated, in the third quarter of this year.

The next question is from Charles Russell. In the SAP BA900 data, it indicates that there was a noticeable tick-up in loan growth in the fourth quarter, both across Retail and Corporate. Does this represent an increase in risk appetite for the group in the South African market? And what is driving this confidence?

Well, if I can take the question around Retail. Yes, we did see an uptick in almost all asset classes. And that is within -- all of that risk is taken within the current risk of [ the times ]. It's just that we talk about pent-up demand invest as well as home loans. Those are really, really the 2 that drove that growth. And also, the middle of the market is buoyant in the sense that the volumes are very high. So we're actually just writing this within risk at the time. Thank you.

Well, within the sort of CIB space, when we look at assets origination in the year 2020, one can discern a clear cyclical sort of pattern. A huge spike in March, which was understandable, given the drawdown that clients did to try and [ pick ] up their all liquidity lines with a significant decline in May. We saw an uptick in June, July and another decline in August. And from there onwards, there was a gradual pickup in our old loan origination. So what we are seeing, therefore, in the movement with regard to the BA900 is a reflection of the cyclicality of our old loan origination. Our risk appetite has not changed, but naturally, we will adapt technically, depending on where we see a risk and where do we see opportunities for growth.

Thank you. The next question is from [ Kunal Kalyan ] from Risk Insights with regards to ESG. The company, we've been tracking your performance in terms of ESG and we commend you on the good progress that you've made. What specific strategies has Standard Bank put in place, if any, with regards to environmental factors?

Sarah, perhaps I could start and then hand over to Kenny and the rest of the team. First of all, one of our strategic value drivers is the SEE strategic value driver. And an important component of that strategic value driver is our commitment to environmental factors as well as social, as well as governance. In my inputs earlier on, I made reference to how we, as an African-based institution balance those 2 as we drive our business. The next bit is that in practical terms, we have established a business unit in CIB, which I'd ask Kenny to talk in more detail about, which is focused directly on servicing our clients and contributing to carbon -- reduction in carbon emissions, but also positive social conduct. Thirdly, when we set targets for our businesses and when we set our risk management framework, we include ESG considerations in that. And then lastly, we are advocates in public for the commitment to the United Nations Sustainable Development Goals. And we also are signatory to the Principals for Responsible Banking. We advocate that in public, we advocate it with our clients, and we advocated it inside the organization as well. Kenny, do you want to maybe just go into this in more detail?

Yes. No, thank you very much, Sim. I mean this is a very important area of focus for us. We adopted the new fossil fuel policy towards the end of last year. The object of the policy is to ensure that the actions of our teams across our different businesses and geographies is consistent and is informed by the same reference point. We are in the process of rolling out the policy, changing and adapting our own processes to ensure that we're quite diligent in assessing what we do against that policy. Secondly, seamless [ effects ] to the unit that we established, which focuses on sustainable financing. We have assisted a number of clients to initiate their own fundraising initiatives that are aimed at ensuring that they comply fully with sustainable sort of finance principle and they can direct that funding to those areas of their businesses that will help them meet their own climate obligation. That area of business is gaining momentum, is the first in the market, and we're proud of the work that they've done. Thirdly, we ourselves have raised and issued a green bond through the partnership with the IFC. That is aimed at ensuring that we can accelerate our own direct investment on those sorts of initiatives that are looking at green energy sustainable development in a whole variety of ways. Just as a reference point, in the last 4 years, 85% of our funding or lending to the energy sector, broadly speaking, has been directed at Green Energy. And we'll continue to do that and we seek to accelerate the development as well as the pursuit of initiatives that are aimed at ensuring transition from old dirty sort of fuel sources of energy to much more cleaner sources of energy.

And Sarah, just including our first TCFD align report will be published this year.

Thank you. The next question, perhaps going back to you, Kenny, is with regards to Inter-Africa trade and how the flows have changed pre-COVID versus what you're seeing today and what your outlook is for trade on the continent?

I mean there's no doubt that COVID has had a massive impact on Inter-Africa trade. I mean most countries closed, they are borders, very sort of limited movement of people and goods. We are encouraged though by how governments have responded to the second wave in that in as much as measures were initiated to try and curb the spread of the disease, we did not see the hard lockdown that we saw in the first wave of the COVID infections. Trade is starting to pick up, but we're nowhere near levels that were pre-COVID. We remain optimistic, though, about the prospects of Intra-Africa trade. Within there's a lot of trade that Africa does with the outside world relative to the level of trade that it does with itself. And there's a massive potential for that to grow, and our business is well positioned to facilitate to assist clients as well as to capture the opportunities that will flow at the back of that.

Thank you. The next question is, from a strategic perspective, are there any particular countries in Africa that are receiving particular focus?

Sarah, at a high level, clearly, we committed to organic growth throughout the continent, but in particular, in Nigeria and in Kenya. We've stated this publicly that we intend to continue growing there. Secondly, we see great opportunities in Ethiopia. If you've just taken a very interesting approach to the dislocation of global value chains. And we think we want to be positioned as they restructure their manufacturing base and position themselves post-COVID. Secondly, we think that Francophone, particularly the [ WAMU ] region is an attractive proposition. Thanks.

Thank you. There seems to have been a slowdown in earnings in Africa regions in the second half. Are there any particular countries where this took place? Or was it broadly across the region?

Maybe I can respond to that. So we must remember that in the first half, we had sizable recoveries in countries such as Malawi. These did flatter the first half results and we see the second half as being a more normalized number. There were no specific countries, which I would like to highlight now, obviously, bearing in mind that not all the countries have reported yet, so it is difficult for me to be very specific by country. But overall, we are pleased with our performance in -- the continuing performance rather in our franchise.

There's another question with regards to the payment holidays. With regards to the ZAR 19 billion that was outstanding at the end of December, are these customers paying? And how does the bank manage this portfolio?

Well, in Arno's presentation, you were having him say, the ZAR 99 billion has gone down to ZAR 12 million. And the payments of the expired payment holidays is above 90%. And for the balance that is still sitting in there, we've actually created some provisions. So that's how that is. So these payments of the ZAR 99 billion of last year. And only post 6 months expiry will we track and know how the performance is going to be.

Thank you. There's a question with regards to Liberty and the Liberty relationship with the group. What is your view on the relationship with the group? Is the current shareholding optimal? And would you consider the change in your shareholding at this stage?

The relationship with Liberty is excellent. It operates at 2 levels, as people would know. Firstly, there's the 54% shareholding, which has existed for a while. Secondly, there is a Bancassurance agreement, which is a long-standing agreement, and it works very, very well. In terms of both arrangements, there are products that are manufactured by both sides of either banking or insurance and they're distributed by both parties, and that works very, very well. The shareholder subsidiary relationship is excellent, and people understand the arm's length nature of that relationship and they understand their fiduciary duties. Liberty released its results last week, and they were quite articulate about how their last year panned out and how they're responding to it. And we're comfortable with the strategies that they've adopted. Very, very focused on value of new business, focused on realizing the discount to embedded value that currently exists. And the team is really, really focused on driving that business. We hold the company 54%. As people would know, in terms of Regulation 38 of the Bank's Act, the impact of that on our shareholding is such that 54% is actually quite optimal because of the way they deduct on capital adequacy -- on common equity Tier 1 works. Simply put, the more you invest or the less you invest above or below the 54%, it has the effect of diminishing our ROE because of the impact it's got on that capital [ deduct ]. So shareholders should be comforted to know that their relationship is a good one. It works. We are in constant conversation as management teams, and we are focused on extracting value with Liberty for its shareholders.

Thank you. The next question is with regards to the proceeds from ICBC Argentina. Were there any particular assets where these proceeds were deployed? Or were they accumulated within the group?

The short answer is accumulate within group. But obviously, we continue to look for opportunities to invest into further assets, and we do so on an ongoing basis. Be it increases in shareholding in some of the African Regions countries or technology-related assets.

One more question with regards to the dividend and the payout. Could you comment any more specifically with regards to what your expectations are for the dividend in 2021?

Yes. At this stage, I wouldn't want to comment more specifically on that. I think we did give the guidance off the podium, and I'd like to keep it at that. That's all. Thank you.

Thank you. Thank you, Sim. No more questions.

Thank you very much, Sarah. To the investment community, thank you so much for your time, and thank you for the great questions that have been asked. Conversations will be continuing with the analyst community in the next few days. And we'll obviously be talking to as many shareholders as is reasonably practical as is customary at this time of the year. With that, we thank you very much. We wish you all of the best. Stay safe, be kind to yourself and be kind to your family and your communities. Cheers.