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

A very good morning to everybody both present here and online. On behalf of the Board and management of the Standard Bank Group, it's my pleasure to welcome you to the presentation of our interim results for the first half of 2023. Here is today's agenda, which should be up already. We want to emphasize that the results are the products of the group doing what it said it would do. At the full year 2022 presentation, we announced 4 focus areas for 2023. Three of those focus areas were strategic and the fourth is financial. The 3 strategic focus areas are listed under point one on this slide. These are: improve our competitiveness, which is reflected in the growing numbers of active clients and increased transactional volumes. Next, maintaining strong momentum in our sustainable finance business. We retain our leadership in sustainable finance with a growing number of market-leading deals during the period. Third, optimize capital and integrate Liberty. Liberty paid ZAR 6 billion in dividends since the deal was announced. And the highlight of the first half was the establishment of our integrated business units called Insurance and Asset Management. Moving to our financial focus area, which is point two on the slide. At the end of 2022, we announced that we were determined to continue to progress towards our 2025 financial targets. This half financial results are well in line with our 2025 commitment on profitability, efficiency and return on equity. We announced this morning that the group's revenues were strongly up, moderated by higher credit charges and elevated cost growth. Nevertheless, we achieved positive jaws of more than 11%. Turning to point three. The group's headline earnings grew by 35% on the prior first half. As a result, the group's return on equity for the first half of 2023 is 18.9%, well inside our target range of 17% to 20%. We are declaring an interim dividend of ZAR 6.90 per share, which is a 34% increase, in line with the growth in headline earnings per share. Starting with a global backdrop. The tragic and destructive war in the Ukraine and its wider consequences continue to reduce confidence and place upward pressure on prices. Tensions between the United States and China clearly reduced towards the end of the half. And as the U.S. Treasury Secretary, Yellen said in April and I quote here, "China and the United States can and need to find a way to live together and share in global prosperity." This perspective gained traction over the half, as evidenced by the establishment of new China-U.S. working groups at the start of August. To quote Professor Li Haidong of the China Foreign Affairs University, he said this, "the handling of this relationship by both sides is gradually maturing and entering a relatively predictable stage." Central banks continued to raise policy rates over the half, and it now seems likely that the inflationary pressures created by the pandemic and the war are starting to be brought under control. In Sub-Saharan Africa, most economies continued to be both resilient and dynamic. Although public debt continued to rise and inflation remained high, the probability of further sovereign restructuring this year reduced over the half. The most notable policy change over the period was the liberalization and devaluation of the naira. This move, although negative for inflation in Nigeria in the fourth term, is promising for growth and investment in the medium to long term. As noted in the Fitch BMI sub-Saharan reform tracker, reforms also accelerated in Kenya, Angola, Ethiopia and indeed in South Africa. Kenya and Angola improved their fiscal policies, while Ethiopia continues to liberalize its telecom sector. Expectations for the South African economy were very low for the first half and was slightly exceeded. Progress continued to be made in growing and diversifying the electricity supply. Based on what is known about investment in new generation, it's reasonable to hope that power shortages will ease considerably over the next year. We also note that Eskom's energy availability sector has improved since the lows reached in January, and that the economy is becoming increasingly resilient to Eskom's declining performance, thanks to rapid growth in product and household generation and storage. For instance, according to Eskom, the private sector has installed a remarkable 4,400 megawatts of rooftop solar since the start of 2022. South Africa continued the unbundling of Eskom and concession Durban container terminal pier 2, which handles 46% of South Africa's port traffic. We hope that ambitious structural reforms of this sort will continue at pace. Another positive development since we last reported is that in our view, the risk of South Africa losing AGOA preferences or of sanctions being imposed has receded. During the half, President Ramaphosa visited both Kiev and Moscow to encourage negotiations, and senior government officials were visiting Washington earlier this year to clarify South Africa's stance. Earlier this month, U.S. Deputy Secretary of State, Victoria Nuland is reported as having said that while she did not want to preempt the decision by U.S. lawmakers on where South Africa will retain AGOA status, President Ramaphosa statements would help to motivate for an extension. To quote Secretary Nuland directly, she said this, "When South Africa stands up and say Russian's war against Ukraine must be settled in a manner that defends the UN charter, that defends sovereignty and territorial integrity of nations that says no to taking land by force, that statement as unique weight." Inflation remained high over the half and the repo rate increased a further 125 basis points since the start of the year. We think that inflation in South Africa has peaked at the end of the half. The robustness and long-term competitiveness of our business is illustrated by the graph on the left. This shows that over 10 years, the group's earnings grew by 9% on average, a period that included the pandemic, a once-in-a-century disruption, and several environmental catastrophes including the devastating KwaZulu-Natal floods in 2022. On the right-hand side, our winning geographical and market diversity is illustrated by the half-on-half change in headline earnings. As mentioned, group headline earnings were up 35%. Within this, Africa Regions earnings were up 65%, international earnings were up more than 100%. In South Africa, South Africa banking earnings were up 17%. We submit that 17% earnings growth in the current South African context speaks to a very strong business with an enviable client base. Taking advantage of the opportunity for rationalization created by the Liberty integration, we reorganized our operating model. The group is now structured into the business units described on this slide. We've also made some slight name changes for clarity. The business units are now Personal and Private Banking, Business and Commercial Banking, Corporate and Investment Banking and Insurance and Asset Management. The fundamental drivers of our performance are the competitive strength and growth of our client franchise. To list some of the highlights for each business unit. First, Personal and Private banking grew its number of active clients by 9% half-on-half and increased digital transactional volumes by 15%. Our Business and Commercial Banking Business unit expanded its client base by 5% and grew digital banking volumes by 9%. Corporate and Investment Banking grew client revenues by 32%. We have more than 7.5 million active insurance policies. Our Insurance and Asset Management business grew new business value by 32%. We do everything in our power to support our clients through good times and bad. We are always looking for ways to increase the financial and economic inclusion of our fellow Africans. Everything we do emerges from this perspective and all our activities aim to create sustainable growth and inclusive value. We safeguarded and grew our clients' assets. There is a strong correlation between savings rates and economic growth in our countries of operation. An economic fact, resilient, given our purpose, Africa is our home, we drive her growth. Together, assets under management and deposits make up a large part of the capital available to government's state-owned entities and businesses to build infrastructure, fund production and create long-term jobs. In countries with low savings rates like South Africa, savings is a scarce and highly valuable source of good, and we support this very real form of national service. We kept ZAR 1.8 trillion in deposits and we kept them safe for our clients over the half. And we paid ZAR 45 billion in interest on those deposits to individuals, corporates and governments who entrusted their savings to us. Interest paid to clients was up 70% from the prior half. We managed ZAR 1.4 trillion in assets over the half, which is mostly money that people are saving for their pensions or that they are relying on in retirement. Talking of assets under management, and as August is Women's Month in South Africa, we'd like to mention that the Standard Bank sponsored African Women's Impact Fund, has so far raised $85 billion for women fund managers to invest in Africa. Risk management and insurance are also major creators of value for society, enabling people and businesses to manage risks and therefore to plan and invest more confidently. For example, a big part of what our Global Markets business does is reduce uncertainty for our clients. And like banking, insurance is also an intensely human business, helping people at their times of greatest personal need. Over the half, we paid out more than ZAR 11 billion to clients in annuities and for death and disability claims. Safeguarding deposits is one of the most important ways in which we create value for society. And that's why we are so careful about how we lend out depositor funds. Declined loan applications aren't a symptom of a lack of humanity. They follow, always with regret, from our primary duty as a deposit-taking institution to keep our clients' deposits secure and always available. Charging interest on loans is of course less popular than paying it, but the interest paid to savers comes from interest charge. So to the provisions we use to ensure that depositors' funds are safe with us, and Arno will be spending a considerable amount of time on this a little bit later. Talking of loans, at the end of the first half of 2023, we held a stock of ZAR 1.4 trillion in loans. Our aim is that each loan brings people closer to realizing their aspirations. For instance, we lend ZAR 22 billion to small and medium enterprises across Africa to grow their businesses. Another example, over the half, we registered ZAR 1.4 billion of affordable housing loans, bringing the number of clients we have provided loans to for affordable homes to more than 98,000. We have more than 20,000 clients in South Africa to manage their debt obligations. After lending and taking deposits, our next most valuable role is to facilitate transactions, enabling people to buy and sell safely and reliably. Over the half, we processed over ZAR 8 trillion in domestic payments in South Africa alone and over ZAR 4 trillion in cross-border payments across all our markets and segments. Within this, one particularly important category is international remittances, a significant contributor to national and household income in many African countries. This half, we enabled ZAR 41 billion in international remittances across all our countries. Finally, we contribute to Africa's economies directly through the taxes that we pay. We make a substantial contribution to the tax revenues of a country, both in terms of the tax we pay and the tax we collect from our clients and our staff on behalf of governments. Our commitment to sustainability, of course, also means that we will strongly support sustainable energy along with other energy projects that generate net positive social and environmental outcomes. For instance, so far, we've mobilized ZAR 83 billion in sustainable finance for large corporations and are well on our way to meet our commitment to have mobilized over ZAR 250 billion in sustainable finance by the end of 2026. We raised a $250 million 7-year sustainable finance loan with the International Finance Corporation, which we will use to fund a portfolio of green and social assets. On the green side, the focus is on renewable energy. On the social side, these funds will be applied to social housing with a focus on first-time women borrowers. We disbursed ZAR 458 million to help individuals in South Africa to install solar solutions in their houses or by houses that have been built in a green and resource-efficient way. We provided ZAR 1.1 billion to support renewable energy installations for small and medium enterprises and larger commercial businesses. Within this, we partnered with a leading provider of the subscription-based solar solutions to support its ambition to expand access to reliable renewable energy solutions for South African households. Insurance and Asset Management has more than ZAR 13 billion infrastructure assets under management, of which just over half is renewable energy assets. Technology is and remains the foundation of everything that we do, literally the platform on which we build our business. It underlies our capacity to serve and support our clients. It enables us to grow market share by winning new clients. It provides the advanced digital capabilities that will enhance our future competitiveness. Our technology has to work as close to perfect as we can get it. We had our share of technology challenges in the past and we're not perfect now, but we're building a formidable track record of robustness, rapid innovation in service of our clients and we are increasing our efficiency. Here are a few examples. Our ATMs were up more than 98% of the time and our mobile app was up more than 99% of the time. Systems' downtime was 72% less than it was in the prior half and mean time to repair, which is really what affects our clients experience, improved by 50%. Over the half, we released more than 14,000 system updates to improve client experience and security. Both our mobile app and internet banking Net Promoter Scores rose strongly over the half. Our number of ATMs and branch square meterage continue to fall in line with changing client preferences, and more than 1/3 of the processing selected for migration is now in the cloud. The current management team is standing on the shoulders of giants as we execute the group's strategy, which was established by our great predecessors. These results reflect our commitment to our clients over many years, including some very, very difficult times. We see these results as a stepping stone towards meeting our long-term obligations to our clients, our shareholders and the communities in which we work. As always, we're here to serve our clients, to win in our markets for our shareholders and to drive Africa's growth. I'll now hand you over to Arno to take you through the results in more detail.

Thank you, Sim, and good morning to you all. I'm now going to take you through the results for the 6-month period ended 30th of June 2023. In the 6 months, Standard Bank Group recorded headline earnings of ZAR 21.2 billion, and that was up 35% relative to the prior 6 months and delivered a return on equity of 18.9%. This performance was underpinned by robust earnings growth across all our banking business and our Insurance and Asset Management business. The group ended the period with a strong common equity Tier 1 ratio of 13.4% and net asset value grew by 10%. The slides that follow cover our banking business results. And thereafter, I will cover Insurance and Asset Management, followed by our business units and regional split of results. Our banking business benefited from continued client franchise growth, larger balance sheets and increased transaction volumes as well as certain markets and interest rate tailwinds. Revenue growth at 27% was well ahead of cost growth, which supported strong positive operating leverage and, as Sim mentioned, a decline in the cost-to-income ratio to 50.5%. Credit impairment charges increased across all portfolios, reflective of a difficult macroeconomic environment, and the credit loss ratio increased to 97 basis points. This ratio remained with now through the cycle topic range. Banking operations recorded headline earnings growth of 42% to ZAR 18.7 billion and the return on equity improved to 19%. Despite significant changes in exchange rates at period end, average rates were similar period-on-period, and constant currency growth rates were therefore similar to growth rates translated into rands. Looking at balance sheet growth. Gross loans advances to customers grew by 9% to ZAR 1.4 trillion, and this was boosted by strong growth in the corporate and sovereign portfolio, up 17%. On a regional basis, South African lending growth was 8% and Africa Regions was 16% on a constant currency basis. In CIB, we saw increased drawdowns on existing facilities and good origination in Investment Banking in the half, led by client demand in the energy and infrastructure and consumer sectors. Investment Banking in South Africa originated ZAR 81 billion in the period. In contrast, disbursements declined across other product categories in South Africa. The overall mortgage markets declined by around 20%, given customer affordability constraints, and we therefore saw mortgage disbursements coming off a high base in 2021 and 2022. Vehicle and asset finance, personal and secured lending and business lending disbursements slowed too, more so in personal finance than in commercial finance. We continue to see lending opportunities in South Africa and stand ready to support our clients' demand. Deposits increased by 7%, driven by ongoing underlying client franchise growth. Current, savings and call accounts grew by 7% and term deposit growth are at pace to us. On a regional basis, we are encouraged by the strong deposit growth of 14% on a constant currency basis across our network of banks in Africa regions. On an average balance basis, assets grew by 10% and liabilities grew by 9% consistent with longer-term trends. Bigger balances and margin expansion drove a 34% increase in net interest income. On the graph on the left-hand side, you can see net interest income growth of 34% as mentioned, and this was driven by, number one, strong average balance sheet growth seen on the previous slide; and number two, wider margins linked to higher average interest rates across South Africa, Africa Regions and international. Weighted average interest rates across our network were 4% higher in the first 6 months of this year than the last first 6 months of last year. Net interest margin, shown in the graph on the right-hand side, increased by 87 basis points to 477 basis points, of which 66 basis points related to positive endowment. This movement equates to a positive endowment impact of ZAR 6.5 billion in the period, and South Africa contributed ZAR 2.8 billion of this impact. The negative impact of tighter asset pricing due to increased competition in home loans, vehicle and asset finance and corporate lending in South Africa, was more than offset by a mix benefit from stronger loan growth in Africa regions excluding the impact of endowment in this period, NII growth would still have been a strong growth of 15.5%. Net interest -- net fee and commission revenue, rather, increased by 6%. Transaction fees were supported by a growing client base, higher client trade and transactional activity and annual price increases. Ongoing investments in our digital capabilities drove higher adoption rates, growth in activity and, in turn, revenues from digital platforms. For example, card-based commission revenue grew by 12% linked to higher card turnover, and electronic banking fees grew by 9%. Fewer advisory deal opportunities resulted in a decline in knowledge-based fees. Some deals were delayed and there's a strong deal pipeline for the remainder of the year. Trading revenue grew by 36% to ZAR 11.7 billion. Fixed income and currencies recorded an exceptional performance driven by increased in widespread foreign exchange related to client activity. Within CIB trading revenue, client revenues grew by 27% to ZAR 7.5 billion. In our market making activities in CIB, we benefited in the current period from African currency devaluations, which is unlikely to be repeated as well as sizable structured equity trades in Investment Banking. Turning now to credit provisions on Slide 25. This slide reflects our balance sheet provisions held against credit impairments over a long period. It shows a steady buildup in provisions and total coverage ratios. And this was through implementation of IFRS9, which introduced forward-looking provisions, the COVID-19 pandemic, where business activity was severely interrupted and clients who offered payment holidays and now a period of rapidly rising inflation and much higher interest rates. Our stock of balance sheet provisions is now at ZAR 61.7 billion, and this represents a prudent 3.8% of our total loan book. On the left-hand side of the slide, you can see an analysis of our loan book. It shows that the percentage of our book, which we classify as nonperforming or Stage 3, has increased to 5.8%. Our early arrears or Stage 2 book has remained similar to last period at 7%. In the middle graph, you can see how we have responded to these changes in terms of raising provisions. Stage 3 provisions have increased to ZAR 43 billion, and this amounts to 70% of our ZAR 62 billion of total provisions. As a percentage of the Stage 3 book, this has reduced to 46% coverage, largely due to a higher weighting of highly collateralized mortgages and corporate lending in the Stage 3 book. This slide expands the middle graph on the previous slide and analyzes balance sheet provisions by business unit. The June 2023 bars on this slide add up to the ZAR 62 billion I mentioned already. In Personal and Private Banking, provisions for Stage 3 loans increased by 14% as customers battled to keep up with interest rate increases in South Africa. Many of these customers are past paying but we classify them as Stage 3 and provisions are raised accordingly. We also saw an increase in customers on a Fitch review in the period. The Stage 3 coverage ratio dipped slightly in PPB which remains very prudent at 47%. The overall coverage ratio in PPB increased to 5.9%, and this is much higher than pre-COVID levels of 4.3%. In BCB, the Stage 2 provisions were increased to account for pressure, evidenced in the small business segment driven by affordability and electricity supply constraints. Stage 3 provisions were increased for all new -- for new NPLs in South Africa as well as West and East Africa in this business unit. As you can see, total coverage ratios increased in BCB. Corporate provisions and coverage ratios are determined on a case-by-case basis. In the current period, new Stage 3 loans are either highly collateralized or have firm workout plans in place, and hence a lower Stage 3 coverage ratio is noted. Credit impairment charges and income statement increased by 42% to ZAR 8.4 billion. Credit impairments on financial investments, and this is shown in the light blue on the left-hand graph and includes impairments on sovereign exposures, were ZAR 584 million in the period. And in the current year, we raised additional sovereign provisions in relation to risks in Malawi and Zambia. The overall credit loss ratio increased from 82 basis points to 97 basis points. Remaining inside the groups through the cycle credit loss ratio target range of 70 basis points to 100 basis points. On the right-hand side of the slide, we show the income statement charge against customer loans by business units. Personal and Private banking charges were up 26%, particularly mortgages in South Africa and the loss ratio, which we flagged recently at our trading update is temporarily outside of the PPB target range. In Business and Commercial Banking, the charge was up 42% due to a few key watch list exposures in East and West Africa as well as pressure evidenced in the small business segment in South Africa. The loss ratio is just inside the target range for this business unit. In Corporate & Investment Banking, charges increased, but the loss ratio remained below the target range for this business unit. Banking operating expenses grew by 16% for the period. You can see here our largest expense category, staff costs, which grew by 19%. After many years of headcount reduction, we grew headcount by 2% to cater for business growth, Ulster risk management and grow digital capabilities. Our staff across our network received inflationary increases and these were linked to the weighted average inflation of our group of 12.5% for the period. Variable remuneration increased on the back of strong business performance and contributed towards the higher staff cost growth. Costs related to technology investments grew by 13% and I will spend some time on the following slides. Premises expenses grew by 10% overall. Load shedding in South Africa increased fuel costs and municipal and cash security costs were also higher. A reduction of physical footprint then helped contain expense growth. All other costs when aggregated grew in line with the weighted average inflation of the group, which I mentioned was 12.5%. Our investments in infrastructure aims to support our 11 million clients and their activities on the channels of their choice in South Africa. Based on their usage patterns shown here, our increased investment in digital infrastructure is appropriate to support the increased volumes and values flowing through these digital channels. In PPB in South Africa, we saw a 5% increase in digital value transactions and a 23% increase in total digital transactions. Our customers are converging the usage on our mobile app from USSD banking and Internet banking. In the month of June 2023, for example, we recorded more than 100 million log-ons to the app and this is up from 55 million log-ons this time last year. Our access to clients has been improved by reconfiguring our branch network over the last couple of years. We continue to increase points of representation via the deployment of pick-and-pay, in-store branches, kiosks and branches on wheels as we rightsize and close traditional large and expensive bank branches. Outside of South Africa, our clients are showing the same digital adoption patterns, with digital transaction volumes growing by 14% in BCB and 27% in PPB. Total IT spend, which includes staff costs, was up 12% for the period. As covered by Sim earlier, this spend has resulted in improved system stability and resilience and significantly improved response and recovery times. Our client experience score in South Africa have benefited as a result. Our cloud migration journey remains on track with 34% of planned cloud migration is now complete. Our call centers and public-facing websites are now fully deployed and running on the cloud in South Africa, contributing to a 100% uptime. IT intangible assets on balance sheets are valued at ZAR 11.5 billion at the end of June, and this compares to ZAR 21 billion in 2018, thus illustrating a steady replacement of on-prem owned and bespoke technology to utilizing cloud-based Software-as-a-Service. That completes our banking analysis, and I'm now turning to Insurance and Asset Management. Our acquisition of the minority shares in Liberty last year figured a change in the way we organize and run the group. Sim has shown you how we have organized ourselves into 4 business units. As illustrated on this slide, the IAM business units combines all insurance and asset management businesses across the group into a single business unit, and this integration is now complete. Interbusiness unit attributions have also been agreed to incentivize distribution of products manufactured in an adjacent business unit. In terms of capital optimization, Liberty declared ZAR 3 billion in dividends as part of the transaction in early 2022, and we have received a further ZAR 3 billion in dividends since the transaction. This increased dividend flow is linked to improved performance and a lower targeted capital coverage ratio in Liberty. The potential buyout of the Liberty to degrees minorities announced recently will deliver further capital synergies. Opportunities for structural realignment within the group exists, which once affected, also will deliver additional capital optimization. These combined synergy benefits exceeded the expectations we had at the time of the transaction. Insurance business across all our operations generated new business value of ZAR 1.4 billion in the period, which is a significant increase compared to the prior period. The increase was driven by all the South African insurance business lines. Group assets under management increased to ZAR 1.4 trillion and this is making us the third largest asset manager in Africa. Insurance operations overall delivered [ ZAR 1.8 billion ] headline earnings, which was up 26% higher than the prior period. In the long-term insurance business in South Africa, underwriting risk has largely stabilized to pre-pandemic levels, and retail mortality experience is now broadly normalized and within expectation. Client persistency has deteriorated on certain books, particularly on investment propositions and solutions offered into the middle and the mass market. Asset Management operating earnings increased by 4% to ZAR 601 million. Within South Africa, earnings decreased largely because of higher planned operating expenditure within standup. Africa Regions recorded a strong performance with earnings up 27% in the period driven by higher assets under management and related fees. IFRS 17 has prompted the change to the composition of assets and exposures that previously resided was in the shareholder investment portfolio. And this has now been renamed shareholder assets and exposures. This portfolio is particularly sensitive to long-term bond yields and unlisted property valuations and landed on a loss of ZAR 14 million in the period compared to a loss of ZAR 265 million in the prior period. IAM recorded improved operational performance and after attributions to banking business units, increased headline earnings to ZAR 1.4 billion. IAM's ROE of 30.1% is improving but remains below the group's cost of equity. We expect IAM's ROE to continue to grow to within the group's target range of 17% to 20%. The group's capital position remains robust. As of 30th of June, the group had capital of almost ZAR 270 billion. And as I mentioned, the group's common equity tier 1 ratio was 13.4%. The group's annualized return on equity of 18.9% is well above the group's cost of equity. And our Board approved an interim dividend of ZAR 6.90, which equates to an interim dividend payout ratio of 54%. The dividend growth of 34% is in line with the growth in headline earnings per share. On the following slides, we look at the Standard Bank Group franchise results split by business units and legal entity, where we use legal entity as a proxy for region. The left-hand pie chart shows headline earnings by business units, excluding the center and ICBCS. Here, you can see our 4 business units and their relative contributions to the group. CIB remains the largest contributor. On the right-hand side, we show a legal entity view of group earnings. In this half, SBSA contributed 40% of the group's earnings and Africa Regions contributed 44%, up from 36% this time last year. International's large contribution in the half stems from significantly increased revenues in our operations in the Jersey Island and Isle of Man. This waterfall chart illustrated the business unit's contributions to the group's earnings growth and shows that all 4 business units contributed positively. PPB grew headline earnings to ZAR 4.6 billion for the half and generated a return on equity of 19.4%. BCB improved ROE to nearly 58% on the back of a 61% increase in headline earnings. CIB added ZAR 3 billion in earnings to end at ZAR 10.7 billion, up 41% and generated an ROE just under 25%. I have already covered the key drivers of the IAM performance. ICBCS recorded a strong operational performance and our share thereof in rands was ZAR 1.1 billion. Earnings were lower than in the prior period, given the once-off insurance claim receipt you may remember in January 2022. Center cost increased due to higher withholding tax paid on dividends received from our subsidiaries as well as ForEx losses crystallized between dividend declaration and receipt dates. The center also benefited in the prior period from a release of a COVID-19-related credit overlay provision amounting at the time to ZAR 151 million. As noted by Sim earlier, our South African banking franchise headline earnings grew by a strong 17% to ZAR 8.4 billion and the return on equity improved to 15.2%. Despite a difficult operating environment, demand for renewable energy financing and trade facilities, continued strong transactional activity and a volatile foreign exchange environment helped this business drive balance sheet and income growth. Importantly, within the 11% noninterest revenue growth shown here, PPB grew fee and commissions by a strong 8% in South Africa. Our Africa Regions franchise performed particularly well with headline earnings up 65% in rands and by 63% in constant currency, and you can see here the return on equity improved to other 28%. Excellent income growth was enough to absorb increased costs and elevated credit impairments in the period. Credit impairments almost doubled, driven by book growth and higher inflows into Stage 3 across most countries, linked to higher interest rates and provisions related to sovereign credit risk migration in certain African markets. Our Africa Regions franchise delivered an outstanding performance across all 3 regions. You can see from the map that all countries grew earnings by more than 10% other than Angola. The top 6 contributors to Africa Regions headline earnings were Ghana, Kenya, Mozambique, Nigeria, Uganda and Zimbabwe. The graph on the left shows the earnings contributions by subregion over the last 11 interim periods, delivering average earnings growth per year of 20% in rands. The graph on the right shows the same data but by country. As you can see, it is a well-diversified portfolio that has delivered really robust earnings growth over time, a testament to our strategy. From a macro perspective, the outlook remains murky, but it seems more constructive than at the beginning of the year. The resolution of the U.S. debt ceiling standoffs and strong action authorities to contain turbulence in U.S. and Swiss banking markets reduced the immediate risk of financial sector turmoil. Of course, we are cognizant that risks to global growth remain: geopolitical tensions, slower growth from China and higher and longer -- higher for longer inflation interest rates all weigh on the global growth outlook. During 2023, we have welcomed positive actions in Ghana, Kenya, Nigeria and Zambia, which have reduced sovereign credit risks in these markets. Sovereign credit risk remains high, however, in Malawi, and has increased in Angola and Mozambique. In South Africa, we are encouraged that inflation is back within the target range, and the next move in interest rates is likely to be down sometime in 2024, we think. And we currently expect that the South African economy will grow slowly at 0.8%. This is somewhat faster than most other forecasts for 2023, but we believe that growth will be supported by continued rapid investment in electricity generation and storage and by accelerated structural reforms. For the 12 months to 31st of December 2023, banking revenue growth is expected to be stronger than previously guided in March 2023 but slightly slower than the strong first half performance. As shown here off the back of our stronger-than-expected first half performance, we have upgraded our NII and NIR guidance for the full year. Despite continued management's focus, banking cost growth is likely to remain elevated in a high-inflation environment and continuous investments in our franchise will be required to ensure our client propositions remain competitive. Banking growth is expected to remain ahead of cost growth, and we will be generating positive jaws. The credit loss ratio is expected to remain in the upper half of the group's through-the-cycle range of 70 to 100 basis points, driven by year-on-year increases in credit impairment charges across all 3 banking business units. IAM's recovery should continue at a similar pace to the first half, barring extreme weather and other unforeseen market events. The group's 2023 ROE will be lower than the first half, but is expected to remain inside the 2025 target range of 17% to 20%. I would like to reemphasize what Sim said earlier. These results should not be seen as a once-off moment. They emerge from our long-term strategy and are stepping stone towards meeting our long-term commitments to our clients, our shareholders and the people of Africa. We appreciate analysts' concerns regarding some of the impacts of this particular set of results, and I would like to address now to avoid any doubt about the sustainability of our financial outcomes to 2025 and beyond. Firstly, on endowment. Yes, endowment impacts will fade as rates stabilize and start to fall. But low interest rates are good for growth and will be supported at our clients' needs and abilities to transact and to borrow. We have part hedged our endowment exposure to mitigate some of the downside risk and our NII sensitivity in South Africa has been reduced to ZAR 1.2 billion for every 100 basis point rate changes. We will continue to closely monitor and where applicable, manage this exposure going forward, the endowment exposure. NII growth, as I mentioned already, excluding endowments for the half, was still a very strong 15.5%. But most importantly, our client franchises are large and robust and continued strong lending and deposit growth, particularly in the Africa Regions franchise, bodes well for NII growth going forward. Trading revenue. We acknowledge an outside trading performance in this half. Market volatility and our access to FX flows allows us to generate additional revenues, specifically following the naira and kwanza dislocations, and of course, this may not be likely to be repeated. But we have widespread underlying client franchise giving clients access to markets and risk mitigation solutions, and these also had an excellent performance in the first 6 months of this year. In fact, it is this client-led business that has allowed us to grow trading revenues by, on average, 17% every year for the last 10 years. We, therefore, are confident that our revenue growth targets remain achievable towards 2025 and beyond. Finally, looking at the translation impact of weaker currencies. Towards the end of the half, we saw a significant weakening in currencies, particularly in Nigeria and Angola. These market set valuations are welcome, as Sim indicated, and positive for investments in growth in these countries as we have noted already. At the end of the reporting period, the assets and liabilities of our subsidiaries are translated into rands at the new lower spot rates and impact accounted for in the foreign currency translation reserve in equity. These impacts were large but minimized by the portfolio effects of dollar, pound and other subsidiary balance sheets denominated in a strengthening currency. Going forward, these new market rates will then be used to translate the earnings from these countries. Africa Regions has over the last 10 years grown earnings translated into rands by on average 20%. And I think this gives you the evidence about the resilience diversity and ability to deliver out of this network of countries. Our primary measure of shareholder value remains return on equity, and in line with our 2025 commitments, we remain focused on delivering an ROE sustainably within our target range. Many of you will be familiar with this slide. Our drivers to deliver improved ROE have not changed, and we look forward to delivering returns that will exceed market expectations. In the short term, we continue to monitor the impact of high inflation, higher interest rates, electricity supply constraints in South Africa, sovereign vulnerabilities in certain African markets and global geopolitical tensions, all of which pose a risk to our outlook. Regardless of the scenario which unfolds, we stand ready and able to serve the needs of 18 million clients and to support the growth of economies in which we operate. Thank you for your attention. I will now hand you back to Sim.

Thank you very much, Arno. Our purpose, Africa is our home, we drive her growth, just does not change. We remain committed to that purpose. Our medium-term strategic priorities are certainly just as valid now as they were when we announced them in 2021. Our financial targets also remain in place. And as we've said, it's noteworthy that we have achieved our revenue, cost to income and return on equity targets this half, and we're absolutely confident that we will achieve them for 2025. But once again, we can't promise only upward movement. Many of our clients are under strain, as you heard from Arno. The world is a very volatile environment and it remains unpredictable. These realities combined with our commitments to soundness, to supporting our clients, sustainability and inclusion and to fulfilling our purpose mean that the path to 2025 will be more winding and bumpier than in a perfect world. Just as we delivered on our commitments for the first half, as seen on the left-hand side of the slide, we will deliver on our priorities for the full year of 2023. These immediate priorities for the next half are listed on the right-hand side of the slide. They are: first, manage costs tightly and credit responsibly, supporting our borrowers to the best of our ability, consistent with our duties to our depositors and to our shareholders; second, provide excellent service both in-person and on a consistently stable system; third, continue to expand our leadership in promoting intra-Africa trade and investment and continuing Africa to China -- and continuing to connect Africa to China to Europe and to the United States; fourth, continue to expand our leadership in inclusive and sustainable finance; and last, remain within our ROE target range. Recently, the group was recognized as the most valuable banking brand in Africa by Brand Finance for the second year in a row, increasing in value by nearly 30%. Brand Finance also awarded us Most Admired Financial Services Brand in both South Africa and Africa as a whole. As always, our sincere gratitude to our policymakers and regulators for the world-class regulatory environment that they create for us and for our sector. We're equally grateful to our shareholders for their continued support. We'd like to thank our 18 million customers for their continued trust in us. And last but not least, we thank our 50,000 employees across Africa for their incredibly hard work and this of course includes our colleagues in the rest of the world. Thank you all. That concludes our presentation. We'll now take questions. And if I may ask my colleagues to join me on stage, starting with Funeka Montjane, Chief Executive of PPB; Bill Blackie, Chief Executive of ECB; Kenny Fihla, our Chief Executive of CIB; Yuresh Maharaj, Chief Executive of IAM and call back Arno, the Chief Financial Officer.

We'll start with questions here in Baker Street, and then we'll turn to the conference call and then finally to Blue Jeans. As a reminder, to submit your questions on Blue Jeans, please do so by kicking on the Q&A link on the right-hand side of your screen. Please remember, for those of you in the room, that there's a button that you need to push to get the microphone going right there in front of you and please speak as clearly as you can into the microphone. And if you could please tell us who you are when you speak. And so let us start then in Rosebank. Rosebank. It feels like Rosebank here at the GLC in Santa. Any questions from the floor? I see a hand here, gentleman in the t-shirt.

Two questions. Firstly, I mean, well, congrats on the results. I mean, if you look over the last 10 years, the growth has been very strong. But Africa has grown substantially faster than South Africa sort of 17%, 18% a year and it is now 45% of earnings of the group. If you look out the next 3 to 5 years, I mean -- and that's obviously a lot of forecast, what sort of number do you think that could be going forward? That's the first question. And the second one, just on the credit loss ratio, which was at 97 bps for the first half. Just to clarify, the guidance for the full year seems quite comfortable that between 75 bps and 100 bps range, which assumes, I guess, at this stage, that you expect it to be lower in the second half than the 97 bps?

[ Matthew ] on your first question, we are about to go into our 4-year planning cycle and we'll be presenting that to the Board in the next couple of months. All of this is predicated on the rate of growth of South Africa and the various countries in which we operate. We don't set specific targets. It's depend entirely on business volumes and the growth in those economies. So we don't set a target and we don't announce one either. It's just dependent, as I say, on customer activity and GDP growth in each of those countries. Arno, do you want to maybe embellish on that proposition and then answer the second question, please?

Yes. The growth is being stronger than expected, so it's obviously very pleasing. And we'll continue to invest in our network of Africa Regions countries. That's no doubt where the growth factor for the group is going to be differentiating us from our peers. And I think the strategy is prudent to deliver very well. It's always been a CIB-led strategy what I'm particularly pleased about actually is the progress we're making in our retail business as well as our business and commercial opportunity in that network of countries. So going forward, the strong growth of -- actually is going to come from those other 2 business units, and CIB's probably going to just continue delivering its strong franchise there. Yes.

The CLR question.

The CLR, yes, we expect the difference in the second half of the year, particularly in Personal Private Banking. We've got various management actions in place, which we believe are going to deliver fruits in the second half, and that will allow us to remain with [indiscernible].

Great. I think there was a hand.

James Starke from Morgan Stanley. Congratulations on an excellent results. My question is on NIM and there's 2 parts to it, so I guess I'm probably directing it to Arno. I mean, you mentioned in the outlook, you have taken specific action to hedge some of the endowments in South Africa. If you could just comment on your strategy to manage endowments specifically in your Channel Islands or international business? And then secondly, if you look beyond 2023 to 2024, how should we be thinking about your number evolving from the current 477 basis points?

The last point was NIMs evolving, yes. So we've part hedge to our endowment exposure, we continue to look for opportunities to hedge further. Obviously, to fully hedge the portfolio is probably not feasible at this point in time and will take quite a bit of time. But as opportunities arise, we will continue to hedge downside risk, and that includes not just South Africa but in the Channel Islands as well as in Africa Regions, where we've employed tactical hedging strategies over the time. Our NIMs, we expect continued strong NIMs for this year and then a slight reduction in 2024.

Thanks, James. The gentleman next to James?

[indiscernible], Morgan Stanley. My questions relate to Insurance and Asset Management risk. Three questions on that. Just first one, can you just explain the dynamic around the increase in the index new business volumes by 7% relative to the VNB growth, which was more essential, I guess, is a variety of metrics to look at there, your headline number being 32%, if you can just unpack the better margins. Can you just explain the impact of owners contracts? [indiscernible] and just having a look at the current half relative to the previous half disclosure, there seems to be some movement in the owners contracts numbers. If you can just unpack the impact on profit. And then lastly, can you just expand on what you need to achieve operationally to improve the ROE in the segment to within the target range of 17% to 20%.

Okay. Thanks. I think on the first aspect on the index new business, driven at inflationary levels I mean, I think that's the key driver as well, which will operationally give us leverage in the franchise in South Africa and in Africa. With regards to new business value, that increase in what we show now is effectively the entire new business value of the combined offerings of the group. So that includes the embedded products and solutions that are now distributed, particularly through Private and Personal Banking. So we aggregate the sort of combined impact and the value that's been achieved over the last year. So that's the composition of new business value. And then on the final piece, I think it's a combination of 3 factors. One is continue to drive volumes, tightly manage costs and continue looking for capital efficiencies, as was called out earlier.

And just the last point on contract?

Sorry. I mean, we'll deal with that, obviously, in detail. This is the inclusion of IFRS 17, where we sort of untax our new disclosure moving from IFRS 4 to 17. And that sort of talks through a particular definition of [indiscernible] contracts relating to the standard. And that talks in sort of -- at the sort of highest macro level where you incur sort of costs and charges upfront, but obviously earning the revenue stream over the period of time and the existing portfolio that we have to look at and identify those. And we can unpack that on the one-on-one discussions later.

Thank you so much. I don't see a hand. Maybe just pick up, sir.

First of all, my congratulations on the excellent results. I'm particularly impressed the way you've taken great steps to impress on us how sustainable they are. We share your hope or rather your faith, and we live in expectations. If I may just remind you all of the effect of the Grindlays acquisition now 30 years ago with Africa's contribution, and it won't be long before it's going to be close to beating South Africa. I'm particularly impressed by your country disclosure in Slide 46. I think that's a very notable first-time step. It's obviously been facilitated by the improving performance and stability. I'm curious to know what your plans are for Liberty 32D, taking that off the market. I am sure you've got some very unhappy shareholders over the period of that investment. I'd like to also compliment you on your capital efficiency achievements within Liberty. That ZAR 6 million was obviously all dividends or it might have been core dividends. But I'm still curious to know as the previous question raised how you're going to get from an ROE of 13% to 17% although Yuresh has provided some explanations.

Tim, thank you very much for those comments. I didn't detect any questions there. We are agree with a lot of what you said. And we thank you for your contribution to the Grindlays acquisition. Could we take any more questions from the floor? Doesn't appear to be any. Sarah, are there any on the conference call?

Congratulations on the results. A few questions from my end. Can you please comment on whether you see [indiscernible] credit risks emerge? [indiscernible] expectations in March and your outlook on credit and payment funds financial investments? And secondly, on the cost-to-income ratio including the maturity, that it improves banking activities. Can you clearly impact the target that moderating costs effected in the second half of this year and where the cost-to-income ratio is expected to land in Q3?

Thanks. Arno, I think those are yours.

Yes. I already mentioned the credit outlook being more benign in PPB, and we see those management action bearing fruit now already. So we've got confidence in that, and we can go into details as we speak. On sovereign investments, we're obviously monitoring carefully the environment for sovereign risk. We mentioned off the podium Malawi is one of those sovereigns we're worried about. And we think we are appropriately provided and we have managed our books as well as we can in the current environment. I think we also demonstrated last year on the back of the Kannaiyan sovereign event that such sovereign risk events can well be absorbed in the overall portfolio of the book. On cost-to-income ratio. Yes, I mentioned off the podium that we are expecting higher cost growth, not as high as the first 6 months. But for the full year, it will be slightly lower. We expect positive jaws and we continue to achieve our ambition of having a cost-to-income ratio at the low 50 percentile. So I hope I covered everything there, the line was not clear. Maybe you can just confirm that I've covered it.

I think all those questions -- I think we will see and they where covered. Sovereign impairments on investments and cost income ratio. Any more questions from the operator?

Yes, sir. We've got a question from Harry Botha of Anchor Stockbrokers ahead.

Just want to get a sense on the detailed [indiscernible] in South Africa. Obviously, you had credit loss ratio look lower than in some of the business note. Was there anything one-off or normal in income statement structures considering at the Stage 3 or Stage 2 exposure to [indiscernible]?

Sorry, operator, I certainly struggled with that. Did you get it?

I did. Thank you for the question. I would say 2 factors. The first one is that if you look at our competitors, the way in which we have -- the credit loss ratio has changed over the last 3 years. You will note that it's been different. You will note that over the last 3 years, we've actually had a far more smoother changes in the credit loss ratio. That's the first one. And then the second one is that we -- as we said, we are quite confident that in this second half of the year that we will be able to pull that ratio within its -- the credit loss ratio within its sort of through the cycle range.

Great. Any more questions from the conference call, operator?

No further questions on the conference call, sir.

Sarah, on Blue Jeans?

Thank you, Sim. The first question is from Jeremy Gorven. Should South Africa and the world go through interest rate reduction cycle of approximately 200 basis points, would this pose a headwind to NII growth? And what would the impact be on cost-to-income ratio and ROE? In addition, is the bank prepared to manage its cost in such a way as to preserve cost-to-income and ROE?

Arno?

Yes, we do disclose the interest rate sensitivity. I mentioned at the podium, a 100 basis point interest rate drop would reduce the NII in South Africa by ZAR 1.2 billion and approximately a similar number across our other portfolios as well. So you can multiply that 2x for the 200 basis point impact. Of course, that would dampen the revenue growth, but at the same time, this would be premised on the back of reducing inflation and lower interest rates. And this would, number one, support our credit outlook; and number two, also reduce our cost growth, which is linked in some extent to the inflation environment. We remain confident that our medium-term targets, and they well elaborated 17% to 20% ROE and the cost-to-income ratio approaching 50% will be maintained notwithstanding the declining interest rate environment going forward.

Great. Thanks. Sarah?

The next question is from Ross Keffer, given the level of profitability in Africa regions supported by very high policy rates, do you see any risk of any relevant government implementing banking special tax.

I mean, at the high level, there's always a possibility especially given what's happened in Europe, the latest being Italy as well as Spain, Hungary and various other countries. That's always a possibility. And we'll stand and deal with it as is appropriate.

The next question is from Charles Russell. How do you anticipate with the significant naira and kwanza devaluations will impact the second half earnings?

Obviously, there will be translated at weaker rates. But at the same time, we've seen a better business environment in both of those markets and that will be offsetting, to some extent, the lower interest rates. Also bear in mind, Ross, I keep on emphasizing the portfolio effect. Some currencies are weakened, others are strengthened. And that obviously gives us the net uplift and we've seen that in this period as well both on spots, FCTR as well as on average interest rates -- sorry, average exchange rates.

The next question is from Chris Steward. 2 questions. The first one is with SBSA CET1 ratio at 11.7% and constraints on repatriations across certain African subsidiaries, are you confident that the group can sustain its historic full year dividend payout for 2023 and beyond? And the second question, all banks are reporting management actions in collections in retail banking. Can this be greater than a zero-sum game? Or is there pressure on consumers? What has to give, discretionary expenditure or future consumption if loans are to be restructured and terms extended?

I'm not going to take...

I'll take the first one. Chris, I'd like to know what constraints you're talking about. We can't feel them. So our dividends all being repatriated from Africa Regions in size and volume, as and when they are declared, because we all know there were some constraints in Nigeria quite some time ago, they have been alleviated already at the beginning of the year. And certainly, with the new regime -- market-related regime there, we don't see mixed constraints going forward. Africa Regions is increasingly paying a larger and larger share of the group's dividends, and to cut to the chase that we continue to see our dividend being paid within the target payout ratio range of 45% to 60%.

[indiscernible] collections?

Yes, on the retail side, firstly, no doubt there is a pressure from a client perspective. But I just want to say that from a client perspective, we do have quite a high-quality middle income to an affluent client base that we lend to. A lot of these clients are paying. They're just not paying the current interest rates that the shortfall from -- in terms of the current interest rate. Whenever we make arrangements with these clients, a vast majority of these clients are adhering to that. We definitely have gone through different cycles that look like this. And what we do know is that when we provide bridging with the right level of communication and the right level of support, these clients will come through. So absolutely, I've got a high degree of confidence that the actions that we are doing to supporting our clients through this are not only important from the management of the impairment cycle or the credit risk, but really for deepening the relationships we have with our clients so that they know that we are not a fair with the bank.

So one more question from Chris. Is this a more conducive environment for the completion of the sale of the ICBC stake?

The conversations with our colleagues at ICBC are ongoing and we've just come back from the Middle Kingdom with the Chairman. They are going to be here next week to attend the big conference. We're going to be talking about the continued integration of ICBC into -- ICBCS into ICBC, strengthening our cooperation with them, and that conversation continues. So there's nothing new to announce in that regard Chris.

Next question is from Molly from Goldman Sachs. The question is around SBSA ROE. With ROE, despite solid endowment tailwinds still sits at 15%. What drivers will help improve this as the benefit from the rates subside?

Arno?

Yes. I mean the macro environment is tough in South Africa, as we all know. In PPB, we've had to raise considerable amounts of impairments. And the PBB business in South Africa grew earnings by only 1%. So as we see rates come off and the macro environment improves, its growth coming through, we'll see a higher ROE for SBSA. Yes, I think I'll probably leave it at that. Also need to bear in mind that SBSA does have some of the group costs and obviously, that will always be a cost which has to be borne by this entity.

The next question is from Louis Kruger. He says the FCTR did not show a loss as one would expect given the material devaluation in the naira and in Zimbabwe. Can you give color on why this is not the case?

Yes. Thanks, Luis. I'll take that. We see strengthening in the Uganda, [indiscernible] , Mozambique, Zambia, [indiscernible], which is with the dollar-denominated as well as pound-related currencies. And that, obviously, from an FCTR point of view, has offset in the weakening of the naira, the Angolan kwanza and the Zimbabwe currency. So there we would have FCTR debit, elsewhere FCTR credits and the net impact is largely flat for the period. Again, I emphasize the portfolio effect.

The next question is from David Rosseau. Given the devaluation in naira, which exchange rates do you expect to get money out of Nigeria Act in terms of dividend?

At social exchange rate, which is currently trading at 780 naira per dollar.

Thank you very much, Sim. That's all the questions we have.

Thank you very much, Sarah. To the shareholders and interested people on the line, thank you for your time. To the ladies and gentlemen here in Morningside, thank you for joining us. It was wonderful to see you all. Please join us for refreshments outside and thank you again for coming to Morningside. Thank you.