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

Thank you all for joining us as we present our results for the first half of 2021. One of the leading Board members yesterday said something remarkable to us. It was actually quite dramatic. And she said, you launch straight into the hardheaded operating environment and competitive issues, and you say nothing about a 1 in 100-year event that has had a profound impact on humanity and is probably the single biggest plague and pandemic that humankind has known. In response to what she said, I think it's appropriate even today for us just to mark the impact on humanity that COVID has had and just to nod to those that have fallen and to the gallant people that are fighting this pandemic, whether they be clients, shareholders or our own staff. Just half a second, please. Thank you. [Operator Instructions] Despite the additional uncertainty and restrictions caused by the delta variant, the world economy began to recover from the pandemic during the first half as wide vaccine coverage enabled the return to a more normal way of life and level of economic activity. The economies of Sub-Saharan Africa contracted less than most in 2020, but the continent recovery from the pandemic may be prolonged by the slow vaccine rollout in most of the continent. In South Africa, a very deep contraction in 2020 has been followed by a fairly rapid recovery, supported by strong commodity prices. The vaccine program in South Africa has now gained good momentum. Even I had my jab this Sunday, my second one, delighted to report. And it is reasonable to expect that most adults will have been vaccinated by the end of the year, which should enable a more rapid and more inclusive short-run recovery. The intense and large-scale unrest experienced in South Africa in mid-July has caused significant economic and social damage and has partially reinforced the case for further structural and governance reforms. However, while these events have been extremely destructive and distressing, we are encouraged that South Africa's constitutional democracy has survived and even been reinforced by the severe stress test that we've just seen. It's clear that the vast majority of South Africans are committed to peace, to our democracy and to the rule of law. The shock we've received may also help us to speed up the structural reforms that our economy so desperately needs. As we did during 2020, we continued to manage the pandemic using the 3-phase approach that we've introduced last year: first, response to the immediate threat; second, recover and help to accelerate the return to growth; and third, reimagine to adapt to the new normal. Fortunately, as you will see today and then in more detail if you care to join us at our Strategy Day tomorrow, the balance of our work has shifted away from respond, and we are firmly focused on recover and reimagine. We've made good strategic progress over the half. Our colleagues have adapted well to our new structures and remain highly engaged, with our employee Net Promoter Scores remaining well above the industry average. Our disbursement volumes, activity levels and franchise have all developed positive momentum and are all growing again. The single most notable strategic development over the half was, of course, the announcement of our intention to achieve 100% ownership of Liberty and to integrate Liberty's capabilities more tightly into the broader group. I'll say a bit more about this in a minute. We're pleased with the strong recovery in our earnings over the past 6 months. We're making good progress. However, as we've said before, full recovery from the effects of the pandemic will take more than a year. Returns have improved throughout the group. Group ROE is up 440 basis points on the prior period, and we are pleased to be able to declare an interim dividend of ZAR 3.60 per share. We intend to draw Liberty's formidable capabilities more closely into the wider Standard Bank Group. This will enable both Liberty and Standard Bank to better compete against our peers by providing both sets of clients with more relevant and attractive set of services and solutions. In other words, this transaction completes the foundations of our platform business. Our proposed buyout will be by way of a share and cash offer. Once the transaction is completed, Liberty's minority shareholders will hold approximately 3.5% of the Standard Bank Group shares. The combination of Liberty and Standard Bank will produce greater revenues accompanied by better operational and capital performance than if they had remained as they are now. I must emphasize that Liberty remains a listed entity and quite independent until the transaction is complete, and indeed, the same applies to Liberty Two Degrees. But we do expect Liberty to be delisted in the first quarter of next year. We delivered many new solutions for our clients during the half, ranging from easy ways to make payments, to further add-ons to our mobile banking app, allowing clients to access all their solutions on a single platform, to innovative, unified digital platforms. For instance, clients enjoyed the convenience of making peer-to-peer payments using QR codes, with payments growing to more than ZAR 60 million per month. And our clients are now able to buy shares in top U.S. companies and ETFs from the Shyft app. Unayo, a unified digital platform which operates across our segments and the continent, has been launched in 3 countries and will soon launch in a number of others. Two examples of innovation from our Wholesale business are PowerPulse, which is a digital platform that links electricity producers and consumers in South Africa and beyond; and OneHub, an online marketplace where our Wholesale clients can access digital solutions provided by the bank as well as third-party solutions provided by our trusted partners. You will hear more about these and many other new services and solutions in more detail if you are able to join us tomorrow. Indeed, we announced just this morning a fantastic partnership with Pick n Pay. The growth we see in the numbers of active clients in our Consumer and High Net Worth and Business and Commercial client franchises in both South Africa and Africa Regions is a positive reflection of the changes we made to improve our client experience. We're proud to have arranged a number of sustainable finance firsts over the half. We partnered with Netcare to launch Africa's first sustainability-linked bond and with Woolworths to execute South Africa's first sustainability-linked loan in the retail sector. We were the sole arranger for Investec Property Fund's sustainability-linked bond, the first South African REIT to issue such a bond. And we partnered with TUHF to list the first social bonds on the JSE's sustainability segment. We're also pleased to report that SBSA launched its debut JSE-listed social bond last week. The bonds were issued under the group's sustainable bond framework, and their proceeds will be used to fund mortgage lending in affordable housing with a focus on women borrowers. Our CFO, the inimitable Dr. Arno Daehnke, will now describe our financial results for the half year in more detail. Over to you, Arno.

Thank you, Sim, and good morning, ladies and gentlemen. I'm now going to take you through the financial outcome for the group for the 6 months ended 30th of June 2021, starting on Slide 9. In the first half of '21, the group delivered headline earnings of ZAR 11.5 billion, up 52% on the prior period, and a strong common equity Tier 1 ratio of 13.5%. This robust result allowed the declaration of a dividend of ZAR 3.60 per share after no dividend was declared in the prior period due to regulatory constraints. Return on equity recovered to 12.9% from 8.5% in the prior period. Headline earnings growth was supported by a significantly lower credit charge, shown here as a credit loss ratio of 88 basis points, recovered from 169 basis points in June last year. Negative jaws for the period resulted in a higher cost-to-income ratio of 58.3%. On Slide 10, we show some of the underlying drivers of revenue growth in the period. On the left, you can see targeted lending growth continuing in our retail portfolios. In the middle, we have shown transactional activity levels recovering meaningfully from lows in the pandemic period last year. And on the right-hand side, we show franchise momentum, illustrated by the number of active clients increasing by 5% in Consumer and High Net Worth clients and 6% in Business and Commercial clients. Increased activity levels translated into strong underlying revenue growth. This is masked in reported revenues, however, by 3 large impacts in the period. First, on NII, shown in the first chart, we continued to feel the endowment impact of lower rates across most of the markets in which we operate. While we are reporting NII down 4%, excluding the impact of endowment, NII would have been up 3%. We are encouraged that margins have now stabilized. Secondly, our noninterest revenue, in the middle chart, the impact of an outsized performance in trading revenue in the prior period has resulted in noninterest revenue being flat overall. We are encouraged by the 3% increase in fees, and we can see that trading revenue is 21% up on a more normalized base in the first half of 2019. Thirdly, which we will discuss later in the pack, the strong rand diluted revenues earned from outside of South Africa. Lower credits impairment charges in the third chart drove performance, and this result was better than what we had anticipated. Slide 12 walks through the headline earnings growth by income statement line item to end at ZAR 11.5 billion. The standout performance is clearly the recovery in credit impairments, shown as the large gold bar in the center of the chart. At the bottom of the chart, we have shown the rand and the constant currency growth rates for the various income statement line items. As you can see, the strength of the rand had a large impact in dampening results from non-SA entities in the period. Headline earnings growth of 52% in rands translates to 64% when measured in constant currency. Slide 13 is our usual income statement table, but we have included a column for the first half of 2019 for comparison against a more normalized period. Using this analysis, we can see that revenues are back at 2019 levels, costs are slightly higher, and the credit charge is still higher than 2019 levels. This slide also illustrates the impact of constant currency on this period's results. And while translating revenues into a relatively stronger -- whilst translating revenues into a relatively stronger rand dampened revenue growth, the currency impact also clearly flattened cost growth. Pre-provision profit is up 1% on a constant currency basis. This is despite the endowment impact and despite the high base of trading in the prior period I mentioned earlier. Standard Bank Activities' headline earnings growth was 41% in rands and 49% in constant currency. And after including ICBCS and Liberty, this improved group earnings growth to 52%. Using this slide as an anchor as we move through the income statement, I'm now going to discuss the 4% decline in NII. As you can see, within loans, average retail balances grew 7%, with the larger portfolios of mortgages up 7% and vehicle and asset finance up 5%. This contributed at a group level to average interest-earning assets up 3% on the prior period. Average corporate loans were lower given higher lending balances this time last year. You can also see that average interest-earning liabilities were up 5% in this period. And within this, deposits, strong growth in current, savings and cash management was experienced, and lower reliance was placed on comparative expensive capital markets funding as a result. The balance growth that we have discussed helped drive NII growth, but declining margins more than offset the balance growth to result in NII down 4%. Compared to 1H '20, margins declined 26 basis points to 361 basis points, with the main driver clearly being endowment, a 27 basis point impact or ZAR 2.2 billion in NII. As anticipated, the second half of 2020 was a low point for margins. I'm now going to cover noninterest revenue, which was flat period-on-period. Within NIR, net fee and commission income increased 3% as consumer activity levels and transactional volumes improved. In South Africa, fee income was negatively impacted by pricing adjustments on account and ATM fees as well as lower cash-related fees as customers switched from branch to ATM and electronic channels. While the latter had a negative impact on fees, it is in line with our strategy to drive our clients to digital channels and to de-cash our branches where possible. Reducing branch sizes and removing cash are key to our ongoing drive to lower distribution costs. Electronic banking fees recorded 14% growth as clients increasingly embraced our innovative and convenient digital solutions. Trading revenue declined from record levels last year. Volatility-related gains were replaced with strong client flows in Angola, Ghana, South Africa, Uganda and Zambia. In the prior period, other revenue and other gains and losses were dampened by equity revaluation losses, hence, the high growth rate of this income statement line item this year. I'm now going to discuss the largest driver of our results, the halving of our credit impairment charge. On Slide 20, we show that the growth in provisions matched to the growth in balance sheet for the period. Balance sheet provisions of ZAR 51.6 billion resulted in a total coverage ratio of 3.8%, flat on the year-end position. Stage 3 loans as a percentage of the loan book remained at 5.5%. And as you can see here, the Stage 3 coverage ratio improved slightly to 47%. Forward-looking provisions have remained largely intact since year-end. On Slide 21, we compare the first half of 2021 with prior periods. Net provisions raised in the period have reduced as lower forward-looking provisions were required and customers resumed payments or repaid loans. Offsetting this somewhat, the South African card portfolio saw continued strain in the expired payment holiday book, and this required increased provisions. Write-offs increased period-on-period. This was the result of the write-off of certain legacy assets in the corporate portfolio and due to the resumption of bad debt book sales in card and personal unsecured portfolios. The credit impairment charge for the period of ZAR 5.8 billion is an 88 basis points credit loss ratio. And this is back inside the group's through-the-cycle target range of 70 to 100 basis points. This ratio, the 88 basis points, is lower than anticipated and flattered by a net recovery in the Wholesale client segment. The financial impact of the unrest riots in South Africa in July this year on our customers is yet to be finalized. However, the impact is expected to be limited predominantly due to client insurance. On Slide 23, we can see the credit impairment charge splits by client segment. A net release in Wholesale amounted to ZAR 278 million as client exposures matured or were paid down. A large decline in credit provisions of 31% in Consumer and High Net Worth clients is evident given the expiration of payment holidays and a generally improved operating environment. In the Business and Commercial portfolio, provisions declined by 20% compared to prior period, masked by prior period year recoveries. The CHNW and BCC charges include the current period impact of provisions relating to client relief portfolios. Active client relief portfolios, and you'll remember a year ago when we spoke about that, these amounts to ZAR 118 billion and ZAR 21 billion as of December, have further reduced to ZAR 6 billion. Within the client relief portfolios, we continue to provide for performing loans that have been identified as high risk or permanent distress as Stage 3 loans, and we will continue to do so until 6 months of performance has been reestablished. We have retained the ZAR 500 million judgmental credit provision held in the center in the prior period given the uncertain operating environment. The CHNW segment's credit loss ratio of 160 basis points remained slightly above the through-the-cycle target range of 100 to 150 basis points for this portfolio. BCC at 167 basis points is also above the range of 100 to 120 basis points. The Wholesale client segment, on the other hand, was below target, bringing the group ratio to 88 basis points. And as I indicated, this is within our 70 to 100 basis points through-the-cycle credit loss range. I'm now turning to operating expenses, which grew 1% period-on-period or 8% in constant currency. The 8% constant currency growth is lower than the group's weighted average inflation, which we calculated to be 9.5% for the period. In the first half of 2021, the largest drivers of costs were staff costs, up 2%; and information technology costs, up 9%. Staff costs were impacted by overnight increases and an increase in variable remuneration expected for the 2021 financial year. IT costs increased as we continue to invest in new capabilities, and I will expand on that later. Other OpEx, this is the last bar in the waterfall chart, benefited from an insurance recovery on a card fraud event in Japan in 2016 of around ZAR 240 million. On Slide 27, we illustrate trends in the shape of operating expenses. As you can see here, expense line items of amortization, premises costs as well as headcount have all been impacted by our continued digitization efforts. Amortization has slowed down as big projects close and fewer projects are capitalized. Premises are being optimized and branch costs are reducing as more transactions move to digital channels. Headcount is reducing as we digitize and automate our operations. The savings illustrated in the previous slide have allowed us to invest in technology and capabilities to compete in the fourth industrial revolution. While IT cost growth is slowing compared to prior periods, we continue to invest in cloud, in productivity tools and in data and analytics capabilities to drive personalization and an even better client experience. We are investing in critical skills development and are reducing our reliance on contractors to deliver change programs. Our new operating model, you will hear more about -- tomorrow about this, consolidates technology, operations, security data and real estate into one engineering portfolio. We do this to identify and leverage synergies and deliver value. Through this operating model change, we have already started to see the benefits of the combined portfolio, and we will also see many more to come in the periods to come. Through the use of technology, operations function is seeing a decrease in costs compared to the same period in 2020. This is driven through the usage of more than 100 robotic process automations across 145 processes. We have freed up capacity to deliver on new platforms, including the launch of Unayo in African Regions, which Sim referred to, and the launch of OneHub as a platform connecting our corporate clients, which Sim also referred to. In addition to this, we now have more than 1,000 VAF dealerships on our new VAF platform. Through our resolute focus on customer experience, we have seen a marked improvement in our mobile banking app ratings in South Africa and a 19% increase in volumes period-on-period. Finally, through continued digital enablement of our customers and our employees and a shift to hybrid working spaces, we continue to reduce our real estate services and in this period had a 5% reduction. I'm now turning to the results from Standard Bank, ICBC plc and Liberty. ICBCS recorded a profit of $72 million in the period. The business continues to make good operational progress and is becoming more integrated with ICBC. The group's 40% share of earnings equated to $29 million or ZAR 420 million after translating into rands. Liberty's performance in the reporting period was much improved from the prior year, albeit still negatively impacted by the pandemic. In the period, additional prospective pandemic reserves raised, together with excess risk claims, amounted to ZAR 1.1 billion post tax. Improved global and South African financial market conditions positively impacted the shareholder investment portfolio performance. As you can see here, Liberty reported IFRS headline earnings of ZAR 222 million compared to a loss of ZAR 2.3 billion in the prior period. After adjusting for treasury shares, the group's share of earnings amounted to ZAR 163 million. Liberty remains well capitalized with a solvency capital cover ratio of 1.73x as at end June this year. As Sim mentioned earlier, on 15th of July this year, the group and Liberty jointly announced the group's intention to buy out the Liberty minority shareholders and to integrate Liberty more closely to the greater group. The transaction is expected to close in the first quarter of 2022, obviously subject to Liberty shareholder and regulatory approvals. Moving to capital and liquidity. Slide 33 provides an overview of the group's capital stack and common equity Tier 1 ratios over the last 4 years as well as our liquidity ratios. Over this period, the group has maintained robust capital and liquidity positions. Our capital levels increased to ZAR 207 billion with a strong CET1 ratio of 13.5%. The group's liquidity positions remained strong with a net stable funding ratio in excess of the 100% regulatory requirements. Similarly, the group's Basel III liquidity coverage ratio amounted to 141 basis points, also above regulatory requirements. As we saw on the previous slide, the group ended the period with a CET1 ratio of 13.5%. You can see this is up from 13.3% at year-end. The waterfall graph provides a summary of the key drivers of the increase in the CET1 ratio in the period. As you can see, the profit -- increase in profit for the period was the key driver. Risk-weighted asset growth was ZAR 30 billion in the period, spread across most risk types. The group ROE recovered to 12.9% in the period, and while improved on the prior period, remains below our cost of equity of 14.5%. This recovering returns and robust capital levels shown earlier enabled a faster-than-expected recovery in the dividend payout ratio to 50%. Over the last 40 years, half of which are shown here, we have an unbroken record of dividend payments. On Slide 37, we have sliced earnings 3 ways. The first and primary segment is client segments based on client types. We have recently changed our operating model and organized ourselves into 3 new client segments. The Consumer and High Net Worth client segment includes all revenues, credit charges and costs related to individual clients. The Business and Commercial client segment cover small- and medium-sized enterprises. The Wholesale client segment covers large corporate and regional corporates as well as sovereigns and multinational clients. This disclosure pivots our reporting to a pure client view as, for example, vehicle and asset finance is now split between all the segments depending on the clients, where previously it was housed as a product in the old PBB. Retail FX is another example that was previously housed in CIB, now reflected in each client segment where the client takes up that offering. Of course, we do still show a product view, we call it a client solution view, shown you in the middle chart. In this view, banking products dominate. In our detailed booklet, we break down banking further into home services, vehicle and asset financing, transactional banking, global markets, investment banking, et cetera. In our current reporting, Liberty is excluded from insurance and investments products. And we intend changing this in future periods should the proposed minority buyout transaction be successful. Most of you will already be familiar with our regional segmental split where we use legal entities as a proxy for regions. In this period, Africa Regions comprised 35% of Standard Bank Group earnings. The top 6 contributors to Africa Regions headline earnings remained Angola, Ghana, Kenya, Mozambique, Nigeria and Uganda. The pie charts clearly demonstrate the diversity and breadth of our client franchise across client segment, client solution and geography. The diversity and breadth of our franchise has proven to provide exceptionally resilient performance even during a 1 in 100-year pandemic stress event. Here, we show client segment income statements. Our CHNW client segment delivered a good set of results in a difficult environment. Headline earnings improved by 132% to ZAR 2.4 billion, and ROE increased to 9.7% from 4.3%. An improving trend in client experience scores, growth in active clients, increasing digital capabilities and robust balance sheet growth are indications of the underlying franchise momentum. Our BCC segment headline earnings increased 1% to ZAR 2.2 billion, and ROE improved to just under 21%. The decline in revenues in BCC was driven principally by lower NII due to a sizable negative endowment impact. Client transactional activity and turnover increased, and client demand for lending to support business growth was evident. Improvements in global trade support the trading environment across most of our markets. Our Wholesale client segment delivered headline earnings of ZAR 6.6 billion, an increase of 27% on an already strong first half of last year, and ROE of 20% was achieved. Revenue pressures were more than offset by tailwinds from impairment releases, equity fair value write-downs suffered last year and good cost containment. This slide shows income statements by solution. Banking solution headline earnings of ZAR 9.8 billion improved considerably, up 39% period-on-period. Banking solution revenue declined 2%. Costs within banking were well contained, increasing only 2% after absorbing annual salary increases, ongoing work-from-home costs, higher digital capability development costs and the normalizing of performance-related incentive costs. Negative jaws were mitigated by lower credit charges. The franchise grew clients and balances, and transactional and account activity improved relatively to the low levels seen during the lockdown last year. A return on equity of 14.9% was achieved. The insurance business recorded growth on policies and gross written premiums, and revenues were up 6% to ZAR 2.3 billion. Revenue growth more than offset higher claims, leading to headline earnings growth of 4% to ZAR 1 billion. Long-term insurance gross written premiums increased by 13%, and funeral gross written premiums growing by more than 20%, supported by strong growth in the underlying policy base. Short-term insurance recorded a 2% increase in gross written premiums. Claims increased across almost all products due to the COVID-19 pandemic as well as a difficult economic environment, resulting in higher loss ratios in both short-term and long-term insurance results. Our capital-light insurance business continues to deliver a strong return on equity. The investment business continued to grow assets under management and headline earnings. Total AUM as at end of June this year amounted to just under ZAR 500 billion, split approximately 50% South Africa, 40% Africa Regions and 10% international. Africa Regions AUM relates primarily to Nigeria, and international to Isle of Man and Jersey. Due to the sizable non-rand-denominated AUM and revenue contribution, the stronger rand impacted period-on-period performance. Headline earnings grew 6% to ZAR 427 million, up 39% in constant currency, 39%. And the ROE of 42% was achieved -- 40% was achieved. As previously mentioned, the excellent results achieved in the insurance and investment businesses are inextricably linked to a large and diversified banking interests -- banking businesses. Finally, by region. The group's regional performance reflects underlying recovery trends in the countries of operation. The group's South African business rebounded strongly, recording earnings of 2.8x those of the prior period. Client demand and activity improved. Disbursements and fees recovered. And credit charges declined from elevated levels. Standard Bank of South Africa's return on equity recovered to just under 12%. Africa Regions' performance was significantly impacted, as you can see here, by currency movements. As an example, revenue declined 11% in rand but grew 10% in constant currency. Underlying growth was underpinned by ongoing balance sheet and client franchise growth. Constant currency cost growth of 27% in African Regions warrants explanation. The largest drivers in this cost growth were: overnight staff increases averaging 80%, compounded by cost of living adjustments in Zimbabwe; IT cost growth of 27% as a result of increased digitization efforts to support clients and balance growth. A proportion of these IT costs are U.S. dollar denominated, which further exacerbated the growth rates in costs. Thirdly, deposit insurance and AMCON costs in Nigeria and Ghana linked to the balance sheet size of these growing businesses increased significantly. This level of negative jaws is not sustainable, and we are confident that they are not -- that they will not be expected to continue. Credit impairments declined by 20% in constant currency. You can see here also the Africa Regions ROE dropped to 17%. In East Africa, revenues held up well in constant currency, and credit impairments improved. IT costs drove up costs in constant currency. And despite negative jaws, headline earnings grew 3% in constant currency. In rands, headline earnings declined by 9%, and ROE dipped to just below 15%. In South and Central Africa, revenues grew strongly despite low interest rates. Fees bounced back after the lifting of waivers in most markets in the prior period. Credit impairments declined as operating environments improved. Costs increased meaningfully in constant currency due to the translation impact of U.S. dollar-denominated costs, cost of living adjustments in Zimbabwe I mentioned already and higher IT costs. Headline earnings reduced in constant currency but increased in rands to ZAR 1.8 billion. Return on equity was a strong 19.2%. In West Africa, strong balance sheet growth was not enough to offset the impact of declining interest rates and, therefore, NII declined. Fee income growth was strong, but trading revenues declined given the excellent trading performance in the prior period. Credit losses in West Africa were lower. Operating expense growth was high in constant currency driven by deposit insurance costs in Nigeria and Ghana. West Africa headline earnings declined to ZAR 1.4 billion, and ROE reduced to 16.3%. That brings the interim results analysis to a conclusion. I will now hand over to Sim to discuss the outlook for the remainder of the year. Thank you.

Thank you, Arno. Looking at the macros for the second half of the year, barring the arrival of a very dangerous new variant, which as we understand it isn't likely, we expect that the world economy will continue to recover rapidly from the pandemic. China's economy, for instance, is expected to grow at 8.4% this year, while the U.S. economy is forecast to expand by 6.4%, the U.K. by 5.3% and the Euro area by 4.4%. Of course, these growth rates reflect sharp contractions experienced in 2020 as well as the rapid recovery this year. The base effect is less pronounced in Sub-Saharan Africa, which contracted relatively less in 2020 and will grow relatively less quickly in 2021 as a result, probably at around 3.4%. Further waves of the pandemic are also likely in much of the continent, but it's also likely that vaccine coverage will improve over the next year. As I said at the start, we think that the recent unrest, while extremely disturbing and destructive, has also demonstrated that South Africa's democracy and rule of law are well consolidated. Unless similar events will occur, we expect that the negative effects on confidence and the investment will fade and that South Africa's economy will continue to recover quickly in the short term, supported by strong commodity prices, accommodative monetary policy and accelerating investment in public infrastructure. There are, of course, fiscal risks to the downside. But on balance, we expect that the fiscal outlook will slowly continue to improve. As has been the case for more than a decade, the medium- and long-run prospects for South Africa depend to a large extent on the pace and scale of the structural reforms. We've been encouraged by the reforms made over the past 6 months in the energy and logistics sectors and by the positive signal sent by the partial privatization of SAA. Since we last reported to the market in March this year, we have been more certain -- there's been more certainty about how we expect the full year to shape up. We're optimistic that the positive momentum in our business will accelerate. We are, therefore, able to provide an updated and clear outlook for certain of our key drivers. We expect that our net interest margin for the full year of 2021 should be similar to the first half of 2021, which, as you have seen, was 361 basis points. 6 months ago, we expected our credit loss ratio for 2021 to improve from 151 basis points reported for the full year of 2020 but to remain above our through-the-cycle range. Given the improvements we have seen in our book, we now expect that the full year credit loss ratio will be within our through-the-cycle range of between 70 and 100 basis points. The full year of 2021, we expect to deliver more than 20% headline earnings growth and an ROE which is higher than last year but still lower than the cost of equity. We anticipate the trends we've announced today will continue, demonstrating progress towards full recovery. Lastly, we have updated the outlook for the dividend payout ratio for the full year to approximately 50%, a return to pre-pandemic levels. Looking beyond the next year or so, we remain firmly bullish on Africa's medium- and long-term prospects. This confidence is based on the fact that Africa's population will continue to rise quickly, become healthier, become better educated, more urbanized, more digitally connected and more productive. This will be happening just as populations elsewhere are getting older and more dependent. We believe that Africa has the potential to become the bread basket, the workshop and service center of the world over the next 50 years, particularly in those countries which have the right policy settings. Our corporate purpose, as always, remains unchanged. Africa is our home, we drive her growth. We, therefore, remain committed to 3 things: firstly, accelerating Africa's recovery from the pandemic; secondly, generating market-beating sustainable returns for our investors; and third, supporting inclusive and sustainable growth and development over the long term. Our strategic priorities are also unchanged, but we have radically reorganized our structure and extended our capabilities to ensure that we are more able to meet these 3 goals. We look forward to describing our strategic progress and plans in detail tomorrow, and we hope you can join us. We will now go into questions, and I'll invite Funeka, Arno, Kenny and David to join me on the stage. And some may ask, why David? We recently announced the retirement of Zweli. We're in the process of finalizing his replacement. As a consequence, we have asked David to act as the CE of Business and Commercial as we finalize the process with the regulatory authorities and make the appropriate announcements in due course. With that, let me turn it then to Q&A. [Operator Instructions] If you've joined us on the conference call, I will, in fact, now hand you over to the operator for that purpose. Operator, any questions from the conference call?

[Operator Instructions] The first question comes from James Starke of Morgan Stanley.

Three questions for me. Firstly, on ICBC Standard, very pleasing performance, I thought. Can you give us a sense of how persistent that might be going forward and if there's any prospect of receiving dividends from that investment? The second question relates to SBSA. If you could give us some comments around the outlook for that entity's ROE from here and if you can lift it from the current 11.5%, perhaps touching on what kind of RWA growth or capital demand you see in the SA context. And then lastly, on the group's core equity Tier 1 ratio at 13.5%, if you could give us some color on how you see that evolving from here.

Thank you very much, James. Let me let Arno answer all 3, in fact. Arno, do you want to take all 3?

Yes. Thank you. Thanks, James, and good to hear from you again. On ICBCS, we've been pleased by the continued integration of this business into the bigger ICBC franchise. And I think it's quite clear now after quite a few quarters, we have shown good sustainable revenue growth driven by franchise as opposed to by ones of trading-type tailwinds. And this is evident from steady P&L, which is coming through every month. So we're very pleased about that. We are unlikely to get a dividend out of this. But we obviously are continuing to work with our ICBC colleagues in Beijing to have this entity fully integrated and then to have our 40% stake sold to ICBC. And these discussions are ongoing at the moment, and we expect a further announcement to be making next year on developments in that respect. On SBSA, absolutely, the ROE of 11.5% is below our cost of equity. As the South African businesses normalize, and that means from a credit point of view as well as increased revenue driven by endowment impact as well as the additional client activity, which we continue to see normalizing, and client growth trajectory, we expect the ROE to improve above cost of equity for SA. On SBG, 13.5% CET1 ratio, that is quite a bit above the greater than 11% targets we give. And this also informed our slightly more generous dividend payout. We expect to continue to manage our CET1 ratio a little bit tighter, a little bit towards our 11% -- greater than 11% target ratio, and that will also then inform possibly a slightly higher dividend payout ratio going forward. Thanks, James. I'm hoping those are addressing all your points.

At this stage, there are no further questions on the lines.

Thank you. Sarah?

Thank you, Sim. The first question is from [ Donato Savander ]. The question is one for Funeka in relation to the recently announced Pick n Pay partnership. How much additional costs do you expect to incur from the Pick n Pay branches? Was it always part of your strategic plan? Or is it an indication that you might have lost some market share in the entry market post the closure of the branches in 2019?

Thank you for the question. The relationship that we've announced today with Pick n Pay is part of the broader plan or strategic plan of creating additional value for our clients as well as for Pick n Pay as well as Standard Bank. As far as Standard Bank is concerned, we see it as an incredible way of increasing access for our clients, not just in terms of access to new services but also in terms of existing clients having access, being able to pick up the card while you're shopping at Pick n Pay, for example. But it's also true that it does give us access to clients that we wouldn't have seen before. I do want to say that this is really about broader strategic partnership and more will come out of it. You will see -- you would have noted that we have actually increased clients in the first half of the year and 4% -- in the main markets, we've increased our clients by 4%. So we definitely are seeing significant amount of growth that's starting to come there. From a cost perspective, it's going to be minimum. The big contribution of this partnership in the financial statements really starts to show as we start to optimize the big branch infrastructure that we have to continue the journey that we started in 2019. Thank you.

Thank you, Funeka. The next question is for Funeka, David and Kenny. It comes from [ Asif Mohammed ]. Please, can you give us the client Net Promoter Scores trends for the various business units over the last couple of years? What is being done to improve the trends? Funeka, if we can start with you. Thank you.

Thank you. Thank you, [ Asif ], for that question. We have certainly seen a significant amount of improvement in the Net Promoter Score. We measure it every time a client do a transaction on any client engagement platform, whether it be digital, physical, call center, and the trends are consistent. We have seen a significant improvement, including this year, even with what we've seen in terms of disturbances around COVID and our ability to serve some of our clients. Overall, we definitely are seeing a strong improvement in terms of COVID. A big driver of that has definitely been, firstly, the work that we've done, we continue to do in partnership with our engineering team to really strengthen the -- improve the experience on our digital channel because 90% of our client engagement platforms come from there. And you only have to look in the iOS store as well as Android store to see very strong ratings there of over 4. And earlier in the year, we saw quite a pleasing story in terms of both the releases of, firstly, South African client satisfaction index that placed our app third in the market, confirmed later on by Columinate that actually saw an increase in our rating of our app from 71% to 78%, which plays us third in the market. So just to think about -- that sort of demonstrates how much we've done to really, really close the gaps in key, key areas of our client engagement.

Yes. Thanks for the question, [ Asif ]. Just from the BCC side, we've definitely seen a continued trend, upward trend in the NPS score. I guess there's some specific actions that have been taken that have landed already that I think have been successful. So in the enterprise area, a model like our Enterprise Direct, we've almost got 90% of our services being able to handle through Enterprise Direct. And in our Business and Commercial segment is really down to our relationship managers and the strength of our relationship managers. I think the really exciting stuff is that we've got more things in the pipeline that should further improve the score. So you'll hear in the strategy there. I was talking about more additions to our mobile offerings, onboarding, et cetera. So I think we see even further upward trend in the NPS. Thanks.

If I may comment on the client satisfaction index, banks, corporates and large institutions, we have definitely seen a continuous improvement over the last couple of years. We undertake detailed surveys of clients, and we contact an external party to do that across all the markets where we operate. The results of the markets that have been covered this year up to date suggest that, that trend, which is an upward trend, continues to improve. We're currently sitting at 8.2 out of 10. And when we started a couple of years ago, the CSI scores were around 7.8. So clearly, over the last 4 to 5 years, we've seen an upward trend. We continue to work on that. I'll only be happy once we get over 9, but I'm happy with the direction of travel for now.