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

Good morning, everyone. On behalf of the Standard Bank Group leadership team, I welcome you all, both physically and digitally. A special welcome to our Chairman, Nku, and then I see next to her is our former Chairman, the inimitable Mr. Thulani Gcabashe. Welcome, sir. Thank you all for being with us. It's great to see you all. 2022 as a remarkable year for the global banking industry. Following a decade of sluggish profitability, increased market volatility and higher interest rates, all of these resulted in stronger profits for the banks. Indeed, global banking profits saw a 14-year high in 2022. However, despite increased profitability, improvements in return on equity have been relatively muted. Only about half of global banks delivered returns above the cost of equity in 2022. In 2022, our headline earnings increased by 37% to ZAR 34 billion. This outcome was underpinned by continued balance sheet and franchise growth, another strong trading performance and well-managed costs and risk. We also made good strategic progress in key areas with excellent performance in all our businesses and in all our geographies. Our return on equity improved substantially from 13.5% to 16.4%, well above our cost of equity. Taking into account our robust capital levels, we declared a final dividend of ZAR 6.91. This equates to a 60% payout ratio for the second half of the year, which is at the top end of our guidance range. Our strong performance is especially noteworthy given the volatile and complex operating environment. Our organization has proven to be remarkably resilient and not really resilient, able to thrive in challenging circumstances. The global operating environment saw 5 major shocks, which happened simultaneously. First, macroeconomic and geopolitical shocks with soaring inflation as a consequence. Second, an asset value shock with steep declines in valuation of growth companies and also many property markets around the world, including China. Third, an energy and food shock, mostly related to the war in the Ukraine. Fourth, our supply chain shock, which started during the first pandemic lockdowns and has continued as a result of geopolitical tension. Fifth and last, a talent shock often labeled as a great attrition as the nature of work tries to find a new equilibrium. In sub-Saharan Africa, too, inflationary pressures mounted and interest rates increased. Most countries experienced currency weaknesses relative to the U.S. dollar. Discussions with the IMF around sovereign debt support programs continued in various countries. In November 2022, Ghana announced its intention to restructure its debt. Sub-Saharan Africa GDP is expected to have grown at around 3.8% in 2022, ahead of global growth of 3.4%. In South Africa, while high commodity prices and strong terms of trade, provided some protection in the 6 months to 30 June 2022. This faded quickly in the second half of the year. The South African economy and South Africa's people were battered by severe flooding in KwaZulu-Natal by a drastic escalation in the frequency and severity of load shedding in the fourth quarter and the cumulative effects of decades of underinvestment in South Africa's road, rail and port infrastructure. After a sharp dip in the fourth quarter, the South African economy grew by 2%. I wish it had been 12% -- by 2% in 2022. Rapid inflation was an additional source of stress and the repo rate increases necessary to combat it were an additional source of stress for most people and businesses. The repo rate rose 325 basis points in 2022, both faster and higher than expected. Consumer balance sheets remained relatively robust. But by year-end, signs of stress had started to emerge. Having said all this, we are also encouraged by the structural reforms made over the past year, reforms that have been bolder and more sweeping than is sometimes noticed. One case in point is Transnet's decision to concession the Johannesburg to Durbin Freight line. Another is the treasuries requirement that Eskom concessions many of its power stations. We hope that reform will continue to accelerate, particularly in the electricity and transport industries and to strengthen the stability and capacity of local authorities. We also trust that government will continue to make economically rational policy choices in both domestic matters and international relations, especially considering that we are in competition for capital with other nations. As has been widely reported, South Africa was grey listed by the Financial Action Task Force in February 2023. This is obviously regrettable and is negative for investor perceptions. But it seems as if the grey listing has already been substantially priced into South African assets. FATF is emphasized that South Africa's major banks have excellent controls. Standard Bank and indeed our peers have worked very closely with the National Treasury and the South African Reserve Bank to ensure that key stakeholders, including correspondent banks remain comfortable in continuing to engage and transact with us. Our international partners continue to have a high level of trust in the effectiveness of our money laundering and terrorist financing control frameworks. While South Africa did not avert the listing. A lot of progress has been made in recent months, including the coming into effect of the general Laws Amendment Act, the protection of constitutional democracy against terrorism and related activities Amendment Act. This should all go well for a relatively short grey listing period. FATF has asked South Africa to focus on 8 priority actions over the next 3 years. In essence, these require the South African authorities to demonstrate that they are more frequently and systematically reporting, investigating and prosecuting financial crimes. The amount of time that South Africa will spend on the grey list depends to a very large extent, on how well coordinated and energetic these efforts are. One recent positive development in this regard is the signing of an MoU between the Hawks and the South African revenue services to share information more systematically and to work much more closely together. The National Treasury points out that FATF generally expects deficiencies to have been addressed within 3 years. And indeed, Botswana and Zimbabwe were removed from the grey list after 3 years. But faster progress is possible. For example, Mauritius was removed from the list within 18 months. By all accounts, Mauritius is unusually short time on the grey list, was thanks to a great deal of tightly coordinated effort led from the top, and Mauritius is, of course, a smaller economy than South Africa. We would, of course, be delighted if South Africa were able to move this fast, but a longer period may well be on the cards. Most people here and on the call are likely to be familiar with this slide, which was introduced at our strategic update event in August 2021. It summarizes our purpose, our strategic priorities and our key group targets for 2025. Despite the complex environment that I referred to, we made good progress during the year towards meeting all these targets by 2025. Despite the complex operating environment, we successfully defended and grew our core client franchise by improving our service. We've also made good progress in executing our ecosystem and platform strategy. We have over [ 40 ] solutions up and running today. These include LookSee, a holistic co-management offering; Trader, which assist SMEs with both working capital and logistics; and OneHub, which provides a comprehensive set of solutions to our corporate clients. Our franchise momentum continued in 2022. We're pleased to have more clients doing more with us. Starting on the left, our consumer high net worth active client base grew by 8% to 16.9 million clients, with the South African client base up 6%; and Africa regions, up 12%. We're encouraged by the 16% growth in private banking clients and 13% growth in youth clients. We now have 1 million active youth clients. We continue to enhance our digital capabilities and to encourage digital adoption, growing our digitally active clients base by 12%. Our digital transaction volumes increased by 25%. Instant Money, our digital wallet, achieved a 22% increase in turnover to more than ZAR 32 billion as we expanded our range of Instant Money partners. Our BCC client base grew by 4% to 791,000 clients. The number of clients using our digital platforms continued to increase with more than half of our clients now using our digital channels. This resulted in an increase in digital transactional volumes of 5%. Card acquiring turnover grew by 20% to over ZAR 300 billion. CIB recorded strong revenue growth, 23% higher than the prior year. We expanded our sustainable finance offering, delivering a number of industry firsts. We successfully mobilized ZAR 55 billion for clients across a number of sectors and countries. All 3 of CIB's businesses delivered double-digit revenue growth with a particularly strong performance from TPS whose revenue grew by 34%. Liberty sales increased. Long-term index new business rose 7% to more than ZAR 9.8 billion. New business value was up by more than 100% to ZAR 390 million, and normalized operating earnings grew by 17% to over ZAR 1.5 billion. Liberty at 3.9 million policyholders. Our performance was supported by strong revenue growth, which grew by 18% year-on-year. Within this, net interest income increased by 24%, thanks to good balance sheet growth and cyclically higher interest rates. And secondly, non-interest income was 11% higher, thanks to a larger client base and increased client activity. Revenue growth was well ahead of cost growth, which created strong positive operating leverage. Pre-provision operating profit grew by 26% from the previous year. On the left, we show the trend in our cost over the last 6 years to the end of 2022. Total operating expenses grew by 5% on average. Within this, IT costs grew by 11%, in line with our plan. So investment in IT was funded by savings in other areas. On the right, the graph shows our average cost growth relative to our peers over the last 5 years. Our average cost growth absorbed high inflation in our Africa Regions countries. Our cost growth over this time is lower than that of our peers, aided by deliberate savings in other operating expenses. As this slide demonstrates, the pandemic disrupted our progress towards consistently generating positive jaws and hence, it temporarily worsened our cost-to-income ratio. Since the end of the pandemic, progress towards our 2025 cost goals has resumed. We remain focused on managing our costs diligently and responsibly as we are acutely aware that operational leverage is the single most important driver of return on equity. In 2022, thanks to strong positive jaws, our cost-to-income ratio declined by 290 basis points to 54.9%. This puts us well on our way to meeting our 2025 cost target of generating a cost-to-income ratio approaching 50%, and I'll return to this point a little bit later. This slide shows the group's 11-year earnings trend and highlights how the diversity and strength of the group has delivered growth. Starting with South Africa. This is the largest part of our group and is, of course, extremely important in providing the capital that we use for growth and expansion. Our South African business has been very resilient in a slow-growing economy especially during the difficult pandemic years. We retain our leading positions in many markets, including home loans and corporate deposits. And our South African balance sheet is by far the largest amongst our peers. Our South African Regions business is a portfolio of 19 countries with great strength and diversity. It has a demonstrated capacity for rapid and sustained growth having grown on average by 18% over the last 11 years. Our Africa Regions portfolio is our most distinctive and hard-to-replicate competitive advantage and source of strategic differentiation. It is the core of our investment case. As long-term investors will know, we've been building this portfolio up since the 1980s, and it is now a very strong set of businesses. This year, despite the significant disruption in one part of the portfolio, Ghana's restructuring, Africa regions still produced a very strong result, up 36% compared to the prior year. As I mentioned, in 2022, our return on equity rose above our cost of equity again for the first time since the pandemic meaning that we are generating positive value for our shareholders once again. The good growth in earnings and our strong capital position supported growth in our total dividend of 38%, with an overall payout ratio of 58%, they close to the upper end of our target payout ratio. The total dividend per share in 2022 of ZAR 12.06 equates to a total amount of ZAR 20 billion paid to our shareholders from our earnings of ZAR 34 billion. We strive to deliver sustainable growth and shared value in the communities and societies in which we operate mostly in the ordinary course of our business. For instance, we employ 50,000 people full time which means that we support another 150,000 people in jobs at the financial sector multiplier of 3. We paid ZAR 15.5 billion in tax to governments of the countries where we work. And we provided nearly ZAR 5 billion worth of new home loans to over 8,000 affordable housing mortgage clients in South Africa. However, we probably have the largest positive impact in supporting the construction of Africa's hard and soft infrastructure. On the hard infrastructure side of things, we support investment in rail, ports, dams and in power generation and distribution. On the equally important soft infrastructure side of things, we support and facilitate investment in health and education. For example, in our partnership with the government of Kenya and General Electric to provide access to advanced diagnostics. These kinds of investments have high desirable properties. The increased Africa's potential and actual growth rates, reduce risk and lower the cost of capital throughout the economy. The support increases in consumer demand. They simultaneously make Africa a better place and improve the profitability and sustainability of our business. One particularly important subset of this kind of investment is investment in energy infrastructure, which is what we are focusing on today. One of the greatest impediments to growth in Africa is the energy shortage. 600 million people in Africa do not have access to reliable electricity. Working with governments and our clients we need to find ways to lift this constraint. Accordingly, we support the principle of a just energy transition for Africa. Massive investment is required, new energy solutions require inputs from a variety of client sectors and industries, all of whom we bank today. As the largest financial institution on the continent, we are very well placed to source, to fund and to structure these solutions. We aspire to be the market leader in sustainable finance in Africa. Importantly, this extends to funding both green and social projects. In 2022, we published our climate policy setting out our path to a net 0 portfolio by 2050 with subsector based targets. To be clear, this policy enables us to invest in transitional projects where these are part of a credible path towards net 0. In our view, refusal to support transitional projects would amount to deny Africa's right to sustainable development. Over the past several centuries, Africa has borne very considerable economic and human costs for other regions. A total or immediate ban on further transitional projects in Africa in order to help reduce environmental pressure in much richer nations would be a cost too far. However, in terms of our climate policy, we are committed to mobilizing more than ZAR 250 billion of sustainable finance solutions by 2026. In 2022, we made good progress on a number of fronts. Most importantly, we mobilized ZAR 55 billion in sustainable finance, 2.5x more than in 2021. With that, I'll hand you over to Arno to take you through the details of the results. Thank you.

I'm now going to take you through the group's results for the year ended 31st of December 2022, starting on Slide 16. The Standard Bank Group delivered a strong financial performance across all key metrics. The group recorded continued positive momentum in client franchise growth across all our businesses and geographies. Revenue growth was well ahead of cost growth, which supported strong positive operating leverage. 26% growth in pre-provision operating profit and a decline in the cost-to-income ratio to 54.9%. Group headline earnings of ZAR 34.2 billion was generated and that is 37% higher than the prior period. The growth was supported by a credit loss ratio of 75 basis points, slightly higher than the prior year. And our Board has approved a total dividend for the year of ZAR 12.06, that is 38% higher than in 2021. Our most important metric, return on equity, improved to 16.4% from 13.5%. On Slide 17, we show the group's income statement, very strong net interest income growth of 24% and good non-interest revenue growth resulted in total income of ZAR 133 billion, up 18%. Expenses grew to ZAR 73 billion, up 12%, which allows for the strong pre-provision operating profit referred to in the previous slide. Credit charges of ZAR 12 billion were up 22%. Standard Bank activities generated headline earnings of ZAR 30.5 billion. And once we include Liberty and ICBCS, the group headline earnings for the year amounted to ZAR 34.2 billion, as referred to earlier. Slide 18 illustrates the largest contributors to the group's growth in earnings. The most notable movement in this waterfall chart is the very strong NII growth. Together with NIR growth, total income growth was up an excellent 18%. This robust revenue growth more than absorbed higher costs and normalizing credit charges. The excellent turnaround from Liberty and good results from ICBCS are evident here too. Slide 19 looks at trends in loan growth over the last 3 years. In 2022, gross loans to clients grew by 9%. In Home Services, disbursements were up 12%, lower than last year but still well ahead of pre-pandemic levels. We still added ZAR 71 billion of new home loans onto our balance sheet which then translated into a 6% book growth. Commercial VAF was strong, with disbursements up 11% to ZAR 19 billion. And retail VAF disbursements were flat at ZAR 25 billion. This resulted in 8% loan growth overall in vehicle and asset finance. Business and corporate lending growth was strong, reflecting improved underlying activity levels after a difficult year in 2021. In Investments Banking, both deal origination and disbursements picked up meaningfully in the second half of 2022. You can also see here from a geographic perspective, loan growth in Africa regions at 14% outpaced growth in South Africa. Deposit growth momentum has been good over the last 3 years and in 2022, deposits grew by 6%. Good growth in current account deposits of 8% was achieved. Over the last year, focus was placed on raising longer-term deposits and NCD issuance was resumed in the local market to support asset growth. Deposits space with our offshore operations in the Isle of Man and Jersey grew to ZAR 6.7 billion as of the 31st of December. The group's commitment to continue to support our clients through the cycle is evident on Slide 21. Over a 5-year period, average interest-earning assets have grown by a steady 7% and liabilities by 9%. In the current reporting period, the group's average balance sheet expanded further with average interest-earning assets growing by 11% and interest-bearing liabilities growing by 9%. Strong average balance sheet growth shown on the previous slide and wider margins supported net interest income growth of 24% to ZAR 77 billion. Here, you can see margins widened by 45 basis points to 427 basis points of which 34 basis points related to positive endowment. The negative impact of tighter pricing was more than offset by mix benefits of higher-margin Africa Regions balances growing faster than South Africa balances. Fee and commission revenue grew by 7% and was driven by good momentum in our client franchises. In consumer and high net worth, as Sim referred to earlier, our active client base grew to 16.9 million customers. And in business and commercial to 791,000 clients. Our improved digital capabilities drove high adoption and hence strong growth in volumes. Customer transactions on digital platforms, grew by 14% in South Africa in consumer and high net worth and by 37% in Africa regions. Transactions processed on our point-of-sale terminals grew by 17% in South Africa, and up by a high 35% in Africa regions. These volumes helped drive growth in revenues from electronic banking, up 12%; and card, up 17%. Trading revenue grew by 15% off an already high base in 2021 to ZAR 17 billion. Our Global Markets business remains uniquely positioned to provide flow and structured solutions across the continent. Our client base and source of income remain diverse and market conditions in 2022 contributed to increased client demand for currency as well as commodity hedging. On Slide 25, we now turn to credit provisions and start by looking at our balance sheet positions at year-end. Year-end balances, as you can see here, grew by 6%, and Stage 3 loans continue to make up 5% of the book. In the graph shown in the center of this slide, you can see balance sheet provisions for credit which grew faster than the book, ZAR 256 billion. Stage 3 provisions of ZAR 39 billion are held against the Stage 3 book of ZAR 77 billion and this provides a Stage 3 cover ratio of 50%. Over a longer time series, it is evident that our stock of balance sheet provisions is high and coverage remains strong. We are well positioned to weather the impacts of higher inflation and interest rates and also sovereign vulnerabilities. In relation to the group's exposures to the Ghanaian sovereign debt impacted by the proposed sovereign debt restructure, the group's exposure, net of settlements year-to-date equates to ZAR 2.6 billion. Balance sheet credit provisions held at year-end equated to ZAR 1.4 billion and combined with fair value adjustments, carrying values of sovereign debt have been adjusted by ZAR 1.5 billion. And this equates to a 56% coverage ratio. The credit impairment charge in the income statement increased by 22% to ZAR 12.1 billion. Increase in the charge was driven by balance sheet growth, increased impairments in Africa regions, particularly in Ghana, as I mentioned, where flows into non-performing loans increased and sovereign exposures were revalued. On Slide 28, we can see the group credit impairment charge of ZAR 12 billion splits by client segment. In consumer and High Net Worth and business and commercial clients, charges were fairly similar to the prior year as improved collection processes were successfully implemented and legacy payments holiday portfolio has improved. A reversal in CIB from a release in the prior year to a charge of ZAR 2.5 billion in the current year, drove the group's increased charge. Increased charges in CIB were driven by single-name defaults in Kenya and in the consumer sector in South Africa, increased charges on corporate lending in Ghana, given stress in that market and write-downs on Ghanaian foreign currency and local currency sovereign debt. CIB's credit loss ratio to customers of 37 basis points remains below the CIB target range. In 2022, we released essentially held COVID-19 provision amounting to ZAR 500 million. Operating expenses increased by 12%, below the group's weighted average cost of inflation or weighted average rate of inflation rather of 14.7%. Staff costs were 12% higher driven by higher inflation and higher incentive accruals aligned to the improved performance. Other costs were impacted by inflation, higher marketing spend to support customer campaigns, and our insurance recovery in the prior year of 2021. IT costs are discussed on the next slide. In South Africa, where inflation was 7%, cost growth was 8%. And in Africa regions where inflation on average was 30%, cost growth was 21%. This slide shows total IT spend and illustrates our support for strategically important digital initiatives. IT costs increased by 13%, largely due to higher spend on cloud and cloud-related software licenses. IT staff costs were up 8%, depreciation up 3% and amortization down 4%, resulting in the overall growth of 8% for the IT function spend across the group. The IT functions focus on resilience and stability is bearing fruit, and we had no major outages in the second half of 2022. We also continue to simplify our IT landscape and continue to decommission legacy systems. Moving to capital and liquidity on Slide 31. Capital optimization remains top of mind, and we are focused on ensuring available capital is either put to work or return to shareholders. The group's common equity Tier 1 ratio declined to 13.5% but remains well above minimum requirements. The group's Basel III liquidity coverage ratio as well as the net stable funding ratio are well above regulatory requirements. On Slide 33, we have represented Standard Bank activities in 3 ways, and these are earnings views. The first is by client segment, based on client types. The middle chart shows our product or client solution view of earnings. The third chart on the right is our regional split, where we have used legal entities as a proxy for regions. In this period, Africa Regions contributions to group headline earnings was 36%. Clearly, this chart demonstrates the diversity and breadth of our client franchise across client segments, solution and geography. This waterfall chart clearly illustrates the positive contributions from all our businesses units to the group's earnings growth. Consumer high net worth delivered headline earnings of ZAR 8.9 billion, up 27% and our return on equity increased to 17.3%. Consumer high net worth strong performance was largely driven by continued momentum in our client franchise, demonstrated by good growth in account transaction fees, card-based commissions and electronic banking fees. Business and Commercial clients delivered headline earnings of ZAR 8 billion, an increase of 51% and a return of equity at nearly 34%. The net interest income growth was very strong, driven by double-digit balance sheet growth and positive endowment impact from higher interest rates. CIB headline earnings increased by 11% to ZAR 14.8 billion and an ROE over 19%. Revenue grew by double digits across all 3 CRB business segments and across all client sectors. Liberty's operational performance improved to deliver a strong turnaround from a loss in the prior period to ZAR 1.8 billion of earnings in the year. The new business value, which represents estimated profitability on new contracts reflected a very strong recovery. The Liberty minority buyout was successfully completed in February 2022 and the process of integrating Liberty into the group is well underway. ICBCS continue to benefit from closer integration into ICBC. Our 40% stake in ICBCS contributed ZAR 1.9 billion of group earnings. That is ZAR 1.4 billion higher than the prior year. ZAR 1.2 billion thereof related to an insurance settlement, as you may know, and ZAR 700 million thereof related to the improved ICBCS operational performance. Our South Africa, mostly banking business, SBSA, delivered headline earnings growth of 26% and our ROE improving to 15.2%. Revenues grew on the back of balance sheet growth, margin expansion linked to higher interest rates and good momentum and activity growth in our client franchise. Credit charges increased by 10%, reflective of book growth and a difficult economic environment in South Africa. Costs were well managed to deliver positive jaws of 427 basis points. Our Africa Regions franchise delivered a robust performance. Headline earnings grew by 36% and ROE improved to 21%. Revenues grew by 30%, driven by a larger balance sheet, higher interest rates, higher transaction volumes, a recovery in international trade and strong growth in trading revenue. The business more than absorbed an elevated growth rate in costs to deliver positive jaws of 9%. As Sim mentioned earlier, our Africa Region portfolio spans 19 countries and its strength is in its diversity and growth profile. In these graphs, we show the headline earnings contributions from Africa Regions. The diverse portfolio has delivered an impressive 18% compound annual growth rate in rands over the period. On the left side, we have shown our summarized regional split to which you have become accustomed to, illustrating a 16% CAGR for South and Central, 17% in East Africa and 29% in West Africa. On the right-hand side, we have included a split of our top 8 countries and their respective CAGRs are shown here. Given that some of our listed subsidiaries have not yet released their results We have not shown the split by country in 2022 here. The portfolio recorded a strong rebound in 2022 off a softer base in 2021. In 2023, global growth is expected to slow and inflation is expected to start declining. This may provide an opportunity for monetary policy easing in certain markets. The International Monetary Fund is forecasting global real GDP growth of 2.9% for 2023, accelerating slightly to 3.1% in 2024. China's reopening post the lifting of COVID restrictions should provide some support. The IMF expects Sub-Saharan Africa to grow at 3.8% and 4.1% in 2023 and 2024, respectively. High sovereign debt levels in certain African countries remain a concern, particularly in Ghana, Kenya, Malawi and Nigeria. In South Africa, monetary tightening is expected to slow. We are anticipating an additional 25 basis points rate hike in interest rates in the first half of this year, and this is in addition to the 25 basis points we've already had in January this year. Thereafter, we expect a pause in inflation tightening -- interest rate tightening. Inflation in South Africa is expected to moderate to 5.9% in the year ahead. The economy is expected to grow at 1.2%, held back by severe electricity shortages and structural constraints. As a group, we have both capital and appetite to support our clients' growth. Our balance sheet growth, however, will remain subject to the economic growth, policy and enabling frameworks in the country in which we operate. And in turn, our clients confidence to invest. In South Africa, meaningful structural reform and an improvement in electricity supply could lift confidence and accelerate economic growth, job creation and social upliftment. We stand ready to support amongst others, the renewable energy and infrastructure projects. Over the medium term, we expect ROE to progress into the target range using the following levers. The first lever is revenue growth from traditional banking in South Africa, of course, somewhat constrained by the growth in the country, supplemented by faster growth in faster-growing markets, particularly where we have opportunities to gain market share. Good growth in insurance and asset management will also drive revenue growth. And new revenues from platforms and partnerships, which Sim has already referred to. The second lever is operational efficiencies, which we will be extracting by growing costs slower than revenue. By growing business as usual costs lower than inflation, we allow for investments in carefully prioritized and chosen areas. The third lever is capital optimization, where we are focusing on creating an ideal optimized capital structure which allows for high-quality business growth as well as strong dividends payouts. For 2023, we expect NII growth to be in the low teens, supported by balance sheet growth, particularly from renewables and infrastructure and higher interest rates. We expect NRR growth likely to moderate to mid-single digits. Trading revenue growth, of course, will be subject to client activity and related flows. We remain committed to delivering below inflation cost growth and positive jaws. The group's credit loss ratio is expected to increase to above the midpoint of the group's through-the-cycle target range of 70 to 100 basis points. The group's 2023 return on equity is expected to improve from the current 16.4%. Progression into the target range will continue, driven by growth in our main state South African banking businesses and supplemented by deliberate allocation of capital to high-growth markets. The dividend payout ratio is likely to remain in the target band of 45% to 60%. We strive to deliver increasingly attractive returns to our shareholders and continued net positive impact in the economies and societies in which we operate. That brings the results analysis to a conclusion. Thank you for your attention. I will now hand over to Sim to conclude.

Thank you, Arno. We're very pleased to be able to report that we've delivered what we said we would in 2022. We said that we would deliver the following which we did. First, we made good strategic and financial progress. Second, we've made good progress towards optimizing our capital, and we are well on our way to achieving our 2025 targets. Our 4 focus areas for 2023 are the following: first, sharpen our competitiveness and continue to meet our clients' needs better. We will focus intensely on growing our market shares and revenues in each of our business units. Second, maintain and extend our partnership, our leadership in African Sustainable Finance, particularly in renewables in South Africa. Third, diligently work towards delivering on our 2025 commitments. And fourth, continue to optimize our capital structure and to rebalance our portfolio to achieve a higher ROE. Here is a reminder of our 2025 targets. In order to achieve these, all our businesses have robust plans to defend, grow and optimize their business. We are constantly working on simplifying our organization in order to maximize the time we spend on meeting our clients' needs. We will constantly strive to become truly human and truly digital, making progress in areas like artificial intelligence, and analytics, but also ensuring that we serve our clients with human empathy and personal advice. As I emphasized earlier, our large, diverse and robust African franchise is unique and is our most distinctive competitive differentiator. We are the obvious financial services partner for any business or investor with African ambitions. We are now well on our way to delivering our 2025 targets. The graphs on this slide use a straight line to illustrate the group's trajectory towards achieving these targets, although, of course, the real world is never linear. The actual outcome will, of course, depend on environmental and competitive forces, but these straight lines give a reasonable sense of where we are heading. Our target is to grow our revenues on average by between 7% and 9% from 2020 to 2025. And so far, over the last 2 years, we've grown our revenues on average by 11% as a result of growing our client franchise with a diligent and focus on meeting the needs of our clients. We have made excellent progress in reducing our cost-to-income ratio, both by strongly growing our revenues and by judiciously focusing on our cost growth. This has resulted in a cost-to-income ratio improving to 54.9% in 2022. We are confident that we will achieve a cost-to-income ratio approaching 50% by 2025. By growing our revenues and generating operational efficiency and by optimizing our capital, we have made progress in lifting our ROE towards the target of between 17% and 20% by 2025. We are close to the top end of our dividend payout ratio band, paying a remarkable dividend of ZAR 20 billion. Finally, we are making good progress in mobilizing finance for sustainable development. Recently, the group was ranked as the most valuable banking brand in Africa by Brand Finance. Our brand value increased by 10% -- over 10%, in fact, to $1.74 billion. This award was as a result of my colleagues' sterling efforts throughout the year, and I'd like to thank them all 50,000 of them for the excellent work they have done. I very much admire their courage, energy, expertise, courage, fortitude. And I'm often in awe of their commitment to serving our clients to the very best of our ability. I must also express our sincere gratitude to our policymakers and regulators for the world-class regulatory environments that they create for us and for our sector. And finally, our deepest gratitude to our clients, most importantly, in fact our clients and our shareholders for your support and confidence in us. Thank you all. That concludes the presentation. At this point, I'd like to ask my colleagues, Funeka Montjane, Kenny Fihla, Arno Daehnke, Bill Blackie and Margaret Nienaber to come and join me to fill some questions. We'll start, of course, with people here at the leadership center. And then we'll go to the conference call. And finally, we'll go to the Blue Team webcast.

I mention this is an unruly group of colleagues. They're not sitting in the order they were meant to sit, but anyway, such is life. This is how we roll. Anyway, can we start here at the GLC. We can start at the back. I can't see because the light is bright, but if you could please mention your name and you can use the microphone on the desk. Thank you.

It's James Starke from RMB Morgan Stanley. Well done on the results. Two questions from my side. Firstly, if you could expand on your NII guidance, low teens in particular, if you could just unpack the subcomponents around NIM, how you expect that to evolve, particularly on the funding side? And the second question relates to a comment you made about rebalancing the ROE. What activities are you looking to up weight or down weight in the mix to achieve that rebalancing?

Great. Arno, you take both.

Yes, sure. We expect continuous strong NII growth, as mentioned earlier. On NIM, another 20 to 30 basis points of margin widening, as you have seen on the latest margin of 427 basis points. And of course, supplemented by a continued good balance sheet growth in BCC, in CIB certainly as well, but also in the consumer space. On the ROE drivers, it really is across the entire spectrum of drivers, which will continue to improve the ROE. We do see an uplift -- continued uplift in the consumer and high net worth client segment. We continue to see a continued uplift in the Liberty business as well as driving higher ROE. And as Africa Regions continues with its strong momentum, that will also be improving the ROE. And all of these parameters will come through quite in the near term.

Firstly, congratulations on the great results and the comprehensive presentation. Long may the 2022 trend continued. Thank you also for this opportunity to address you on what I believe is a unique occasion, financial year '22 is the 30th year that the group has owned the 7 Green lease banks, which you've now grown to 22, which has become the foundation of the biggest part of the group. I think it's fitting that we should remember and celebrate this occasion and pay tribute to the foresight and vision of the Standard Bank Group then named Stanbic. Their leaders who saw and identified this onetime opportunity to expand the group into Africa. One thinks of Conrad Strauss, the Board, Eddie Theron, [indiscernible] Graham Bill and Pieter Prinsloo and his SMB London team. Some of the aforementioned are no longer with us in more than 1 meaning. SMB London to my knowledge, particularly Pieter Prinsloo and Rob Leith negotiated hard and long with ANZ and eventually got to the price to the bank's acceptable level. Mention must also be made of the late [ Eric Malov ] and the other African directors on the Board who through the Africa-wide networks facilitated the due diligence visits. Only yesterday, while preparing these notes, I came across the late Graham Bill's letter dated November '92 in which he advised me of the final consummation of the ANZ deal and express the hope that the culmination of this deal will bring with it in the future is a satisfaction to you. That the sacrifice and discomfort was worthwhile. Thank you, Graham, for those kind of words, may you rest in peace. I fully shared your hope then and still now. The due diligence process and subsequent acquisition was one of the highlights in my career in the bank. If I may, I'd like to now move to a question that Arno knows well about preference shares. And uncharacteristically, the bank has allowed other banks to lead it in the repurchase of the preference shares. Nedbank, Investec, FirstRand. Investec and FirstRand repurchase at par and FirstRand even paid the dividend accrued to the data repurchase the bar has thus been set very high for the bank. Please, will you share with us your thinking on the subject and some detail of your plan to rid the bank of this economically unjustifiable form of capital?

Glenn, first, before on our answers, I must just acknowledge what you have just said. We, as this management team, regard ourselves as stewards, and we stand on the shoulders of giants of which you are one. And the great men and women that you have referred to and some of whom are no longer with us are some of the giants or the shoulders we stand. We are lifted by them, and we're able to do what we're doing now precisely because of the great men and women that you referred to. So thank you for that, Glenn. With that, Arno, you want to answer the -- your pertinent question.

Thanks, Glenn. I did expect that question, and thanks very much for following up on that. In the near term, we will not be buying back our preference shares. We continue to optimize our capital stack and economically we can still have value in these preference shares as they are currently in our balance sheet. So for now, it makes sense to keep them right.

Next, I'd like, if I may, to go to a rather tender area, and that is Bankers voice in National Affairs. Since Alan Pullinger's comments last week during his presentation of FirstRand's results the subject of bankers leader's role in National Affairs has again surfaced. USM have been quite vocal in recent times, particularly in Business Day. I very much appreciated your detailed e-mailed response to me last Friday when I referred you to Alan Pullinger's comments. I would appreciate your further thoughts on this subject although I recognize it to be very delicate and no doubt the subject of much board deliberation and likely a policy decision.

Glenn, we have the highest regard and respect for our rivals and our competitors. And they do a great job in the market, and we do our best topple them. So I must acknowledge that. Secondly, each of the banks have got their own views as to other corporates about their roles as corporate citizens. Our role as a financial institution at Standard Bank has not changed since the times that you're working at Standard Bank. In other words, we will say what needs to be said to the extent that decisions made by politicians have an impact on our role as a financial institution and will assume making political comments. The comment we can make on the delicate matter of the war in the Ukraine is that all wars are apparent. They are apparent both from a moral perspective and also from a human rights perspective. And we, therefore, would like everybody else, condemn violence, particularly that in Russia. But we will do the same as what is happening in Tigran, and we'll do the same as what is happening in respect of what's happening in Afghanistan. And the same voice would be as large in relation to Russia as all other Russia and Ukraine as all other issues of conflict. The more important point is that we will say what needs to be said in respect of the need for financial institutions to be able to intermediate capital on the continent and globally. And to the extent that policies have a negative impact on that, we will have our sale. We think it is important for South Africa to position itself appropriately in global affairs. And in that context, I would refer you to something that was said by Kamakura all those years ago. At Standard Bank, we look either east or west, we look forward. We will do what is right for the African continent. And we will do what is right in the context of what Secretary Blinken said in respect of the relationship between the United States and South Africa. And so we think that the position taken by the South African government at the moment is one of neutrality. One can have moral and political views about that. Our view is that whatever position they take must not have an adverse impact on our role as a financial institution. To the extent that we have views as individuals about the politics of the country, my colleagues at Standard Bank are not permitted to express them, but they're happy -- they can happily express that in the political parties that they belong to but not of the Standard Bank platform. I hope that makes sense. Can I see if there are any more hands. There is a hand at the back.

[ Kunaal ] from Risk Insights. We read Standard Bank on ESG, and we have noticed that your Scope 3 emissions as a percentage of total is quite low. And this is actually something we've seen across other banks as well in South Africa. Typically, it should account for more than 80% of total. So basically, my question is, is there a plan to competitively position the bank and measures go 3 more effectively.

Thank you so much. For that purpose, I will ask David Hodnett sitting in the front row here.

Yes. Thanks, Sim, thanks for the question. I think what I can refer to is just the climate policy, which we've issued. I think we've got a clear stance now of what our position is. I think on the specific topic of emissions, I think we recognize the difficulty in measuring emissions across the group. And in terms of our climate policy and in the resolution approved by the Board for instance, in our oil and gas area, we've got a clear commitment to accurately measure them going forward, and we'll disclose that.

Do we have any more hands in the GLC? We don't. Can we go to -- should we start on the conference call? Any questions from the conference call?

The first question is [indiscernible] from Stock Brokers.

And yes, I think well done on the consumer high net worth growth and transactional activity. Can you give us a sense of the -- we, I guess, gaining customers in South African market from a consumer segment perspective? And do you think that acceleration in NII and consumer high net worth is sustainable that we've seen in the second half and into 2023? And then secondly, just on ICBCS. Can you give us a I guess, sense of the primary driver of operating activity, particularly going into 2023. Will it be impacted by lower commodity prices?

Okay. The first one is for you, Funeka.

Thank you for the question. Let me start at your last comment. Yes, we believe that the NIR growth in South Africa is sustainable. And secondly, from a client growth perspective, the client growth that we are seeing in 2022 really has been driven primarily by growth in the youth segment as well as growth in the private banking segment. We expect that to continue into 2023 as we get closer to the commitments that we've made towards 2025. Thank you.

Can I ask Kenny, if you demand answering the CCS question?

Well, thank you very much, Sim. I mean there are 2 elements, I guess, to the performance of ICBCS. Similar fair to one, it's a better integration into the broader ICBC. And as a result of that, having access to a far more bigger and be part of the client flows. The second is the recovery added back of the sort of losses that we suffered a couple of years ago. And the pairs exposure in the U.S. Naturally, that is not going to recur going forward. But definitely, the integration into ICBC and access to that client base, it should continue to post the performance of ICBCS.

Thanks, Kenny. Do we have more questions from the conference call?

We have one final question [indiscernible] from Citi.

[indiscernible] Congratulations on the results. Two questions from my side. Can you provide your endowment outlook? And also please unpack asset pricing pressure that you mentioned in the presentation further. Do you see the current trend persisting? And just on asset quality, the status of the book seems to have remained stable despite a deteriorating macro outlook in South Africa. And how have you seen arrears trending since year-end? And can you please provide color on where you're seeing strain on your book?

So Arno, do you mind taking all 3.

Sure. On the endowment outlook, I mentioned 20 to 30 basis points wider margin. That will be partly driven by endowment. We do expect another ZAR 4 billion NII uplift because of endowments for 2023. So that's ZAR 4 billion, and that compares to ZAR 6.1 billion endowment uplift in 2022. On pricing, yes, we certainly have seen some pricing pressure in the domestic market in South Africa. In mortgages, for example, concession rates have increased. We're not competing for market share in the mortgage market. And we are prudently writing the right business in the current economic environment. We do have the mix benefit, though, which is also quite powerful for us in the terms that Africa Regions portfolios are growing faster than South Africa portfolio. So that does support our margin as it did in 2022, and we expect that trend to continue 2023. Asset quality remains relatively robust. We have seen some pressure in our portfolio, specifically in the card portfolio and some of the unsecured portfolios. But overall, we are well within risk appetite. We do find that the consumer in South Africa is relatively unleveraged and you would have noticed metrics such as households rather household debt-to-income type metrics remain at relatively low levels. And we are prudently extending credit into this market, considering the forward-looking outlook for the market. And in Africa Regions, yes, I think we obviously won't have a Ghanaian impact again as severe as it's been in this instance. So we expect continued good credit outlook in Africa regions, notwithstanding the higher interest rates.

Thank you, Arno. Then can we go to Blue Gene, Sarah. Do you have any questions from Blue Genes?

The first question is from Charles. Can you please elaborate on the difference between your FY '22 fee income and trading income performance of plus 7% and plus 15%, respectively, relative to your FY '23 guidance of mid-single digits growth. What do you think the drivers of the slowdown will be?

Arno?

Yes, we've had a very strong trading performance this year, particularly in Kenny's business and that is subject to market volatility and client flows. So we're cautioning on that may not be as strong as it is at the moment. And yes, I think overall, we expect a continued good growth. I know we're guiding quite low at mid-single digits. We may exceed that slightly. But at the moment, we remain cautious on promising anything beyond that.

I've got 2 questions from Chris Stewart. I'll provide them together. Please can you elaborate on how you think about the exchange rates that you account the earnings from Nigeria versus the rate at which you'll be able to repatriate profits? Then the second question, in a high inflationary environment, Africa regions is recording very strong nominal revenue growth, especially NII. This is currently not being offset by relative foreign currency conversion rates. Do you believe that the Africa regions revenues are sustainable? Or do you believe that you are over earning in Africa regions currently?

Yes. Okay.

Thanks, Chris. On the Nigerian exchange rate, we used the official exchange rate around NGN 450 to the dollar. We expect that to weaken towards the end of this year to NGN 520 to the dollar. We have been able to repatriate some dividends out of Nigeria and are in our bank account in the group now. And they were affected at slightly higher exchange rates than what I've mentioned now. So that's on the exchange rate. Inflation in Africa regions on the podium, Chris spoke about a weighted average inflation of 30% in Africa region, which is eye watering. If we strip out Zimbabwe, which is the hyperinflationary component, the weighted average inflation by costs now of the group, in Africa regions is only 13.7%. So that's much more moderate. We believe the currencies have weakened. And as we translate it into rand, we appropriately represent the P&L at the group level. And hence, I wouldn't call it over earning in Africa regions currently, but rather the results of continued franchise development, continued market share growth, continued support for our multinational clients across Sub-Saharan Africa. And this is franchise momentum, which are reaping the benefits of.

The next question is from Charles Russell. Can you comment on your ambitions to expand in Africa regions and the intended time lines?

So I'll take that. Charles, the banking business is a derived business in the sense that we do what the economy drives us to do and we follow our clients. With that as the background, we are going to be delivering the targets to 2025 and indeed more long-term targets on the assumption that we continue to grow inorganically. Sorry, that we continue to grow organically. So we're making assumptions that we're going to continue to lend to our clients, increase our client numbers, find solutions for our clients and so forth. The East Africa region is particularly attractive, and we've previously spoken about opportunities that we are searching for there. There are also opportunities in West Africa that we've spoken about, particularly in the WAEMU region. And we've also spoken about the need for us to serve our clients in non-presence countries, particularly in the Maghreb. None of those ideas or opportunities are in our planning, and we will execute them to the extent that they may be appropriate given the pricing, the risk and the circumstances at the time those opportunities present themselves. So in other words, we don't have timing. We don't have plans that we're going to be making any acquisitions in order to expand. The targets that you're seeing are based on organic growth. So I'm not going to give any time lines because they aren't any.

The next question is from Warren Riley. Could you comment on the current renewables lending book and the medium-term opportunity you see?

Mr. Fihla.

The rate of growth in our sort of sustainable finance business is much higher. I mean, our book doubled in 2022 compared to 2021. And we see that growth as being sustainable for the next couple of years. Just linking to the earlier question today, we've done climate change and the role that we play to support energy transition. We have set ourselves a target of originating ZAR 250 million to ZAR 300 billion by 2026. We are already sitting at about ZAR 54 billion such as a great place of origination, and there's no reason why that should slow down if anything with the lifting of the self-generation limit in South Africa, we can only see more self-generation initiatives coming on to the market. And consequently, that book will continue to grow.

Thank you, Kenny. The next question is from Ross Krige. Thanks for the call and congratulations on the results. Firstly, the ZAR 500 million COVID-related overlay has now been released. Are there any other out-of-model provisions on balance sheet? And the second question, Africa regions what do the macro concerns in Nigeria, Ghana and Kenya mean for both the book growth and asset quality outlook?

Do you want to take both?

Yes. There are no material out-of-model provisions, Ross. As you know, we apply IFRS 9, which has got a forward-looking macroeconomic outlook built in. And obviously, we are providing relative to that forward-looking economic outlook. In terms of the macro concerns, yes, obviously, we're calibrating our risk appetite all the time. And to the extent that we do see some higher pressure and sovereign concerns in Nigeria, Ghana and Kenya and we'll be moderating our book growth down and calibrate our appetite accordingly.

Thank you. We've got 1 more question from Eli [indiscernible]. For SBSA, when do you expect headline earnings and ROE to recover to above the 2029 levels? And what would be the driving factors thereof?

You can take that, too, Arno.

We would expect that to be this year in 2023. I mean we're just marginally behind 2019. So this year, we would expect that. And it's obviously driven by our continually improving client franchise, particularly in consumer. I think you've all seen the strong momentum we have in consumer client segment, 8% increased active clients, up to over 10 million active clients, good NIR generation, good product penetration to our client base, and that's supporting us there. Obviously, coupled also with the Liberty integration, where we've gotten our combined sales force of the Liberty sales teams, the tired and independent sales advisers. And then obviously, Funeka's branch distribution network and digital distribution network allows us to and also drive the insurance business more, and that will also support SBSA, but also support Liberty, of course, on both sides. So those are important driving factors to both drive ROE and earnings. In CIB, the franchise is mature, but there are opportunities and Kenny and Sim just speak about specific in the renewable space, sustainable finance space. And in BCC also, although we have got high market shares in BCC between sort of 20% and 30%, depending exactly are you looking at the commercial enterprise subsegment, but there's also continued opportunity and strong growth, which will can evidence in this portfolio. So it really is the overall portfolio coming together, but we do expect a strong year for SBSA and South Africa overall in 2023.

There are no more questions on the webcast.

So thank you very, very much, Sarah. Thank you, colleagues, the folks on the line and the people that are here at the GLC. Thank you very much for your time and for your engaging questions. Those of you that are able to and are willing, there's refreshments outside. Please join us for a couple of tea and some scones. Thank you. Have a lovely day.