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

Okay. Great. Good afternoon, everyone. Thanks very much for joining the Standard Bank Group pre-close call this afternoon. My name is Sarah Rivett-Carnac, and I'll be managing the call. As you will be aware, we issued a voluntary trading update on SENS this morning, referencing the financial trends for the group for the 5 months to the end of 31st of May 2025 and providing commentary on that relative to the 5 months ending 31st of May 2024. We also reaffirmed our guidance across our 3 core metrics for the 2025 year, which are namely revenue growth, cost-to-income ratio and ROE. In this call, we'll cover the highlights of that announcement, and then we'll open the line for questions. On the call today, we have Arno Daehnke, the Standard Bank Group CFO. And with us, we also have Brooks Mparutsa, Barbara Bell and Sayuri Govender as well as Willa van den Berg from the 4 business units. Sayuri has recently taken over from [indiscernible] as the PPB CFO. I will now hand over to Arno Daehnke. Arno, thank you very much.

Hello, everyone, and thank you for joining us this afternoon. I will assume that most of you have read the announcements we issued this morning, so I can be brief and then turn over to questions and answers. Starting with the macroeconomic developments. In the 5 months to 31st of May 2025, uncertainty related to U.S. trade policies, the geopolitics impacted macroeconomic dynamics and monetary policy. Globally, this has manifested in a weaker demand, the slowdown or pause in monetary policy easing as well as weaker growth. Across the group's countries of operations on a blended basis, inflation has continued to moderate from elevated levels and interest rates have declined, albeit more slowly than expected. While uncertainty has weighed on confidence and the GDP growth outlook have been moderated down, Sub-Saharan Africa is still expected to grow at 3.8% in 2025 as per International mandatory fund assisted. In South Africa, while the global uncertainty and the local budget-related wrangles, weighed on confidence and demand, higher commodity prices and market volatility have presented opportunities. We were pleased that the budget was approved and that fiscal restraint was maintained. In South Africa, inflation has been low, providing scope for interest rate cuts, real wage growth and increased disposable income and customer debt capacity. We have seen a 25 basis point cuts in January and then in May as well. South African consumer price inflation for May was released yesterday, and you would have noted was flat on April at 2.8%. More broadly, we remain optimistic that the structural reform program will deliver an uptick in growth over the medium term. Turning to our headline earnings trends for the first 5 months of the year. Despite the considerable uncertainty and market volatility, the group's established and more diversified franchise continues to deliver a resilient performance in the period. As highlighted in our announcement this morning, group headline earnings grew at around 10% in ZAR. On a constant currency basis, headline earnings grew by mid-teens period-on-period. And the group's return on equity for the period remained well anchored within the group's 2025 target range of 17% to 20%. Moving on to the operational trends and key business performance drivers. Starting with our banking activities trends period-on-period. Net interest income was flat. Noninterest revenue grew by mid-teens. Costs were well managed and credit impairments were lower period-on-period. Looking at the balance sheet trends in more detail. The balance sheet growth has been slower than expected, impacting average balance sheet growth in the period. The uncertainty combined with the delay in interest rate cuts negatively impacted demand for credit, particularly in our personal private banking business, in our business and in our business and commercial banking business, both in South Africa. Looking at trends across the 3 banking business units, CIB recorded strong growth in the period, the trend continuing from last year. This was driven by continued strong investment banking origination activity, particularly in the energy and infrastructure, telecommunications, media and technology and diversified industrials sectors. PPB and BCB South Africa have had a slower start to the year than initially expected. BCB South Africa has seen an uptick in disbursements more recently. We need more time to determine if this trend continues. And if it does, it will take time to show up in average balances and net interest income. Turning to net interest margin drivers. Average interest rates were lower. Pricing has been competitive, particularly in the mortgage market in South Africa, thus negatively impacting net interest margins. In contrast, the African regions portfolio grew faster, the South African portfolio, providing a positive mix impact. Noninterest revenue was supported by growth in both key line items, fees as well as trading revenue. Net fee and commission revenue growth was strong, underpinned by the group's growing and increasingly entrenched client base. The group's strategy of providing a full suite of relevant and appropriately priced solutions to our clients, when and where they want them, continues to resonate with clients and bear fruit. Market volatility drove client activity, which supported robust trading revenue growth period-on-period. Turning to banking costs. Staff cost growth was driven by annual increases, higher incentives linked to improved performance, and a change in headcount composition to include more specialist skills. Other operating expenses growth was well contained. We continue to focus on executing our save to invest strategy. Activity related costs were higher, in line with higher client activity. This was offset by slower growth in other areas such as amortization and premises-related costs. Cost growth was slightly ahead of revenue growth period on period. This is in line with expectations at this point in the year. Moving on to credit trends. Slower book growth as well as a continued slowdown in early arrears, lower inflows into nonperforming loans, Personal and Private Banking led to lower credit payment charges period on period. As expected, the group's credit loss ratio for the 5 months of 2025 was just outside the top end of the group's through-the-cycle range of 70 to 100 basis points, and it was lower in the 5 months of 2024. Briefly on insurance and asset management. Growth in operating earnings period-on-period, was supported by improved risk experience and lower short-term claims, positive market returns and net client inflows supported the Asset Management business. Let's move on to capital. The group remains well capitalized and liquid. Share buybacks remain part of our broader, broader capital management strategy. Since March, we have bought back and canceled in ZAR 3 billion of shares. Further buybacks will be subject to the capital available and the expected business demands. As you would expect, we continue to model and plan for a variety of scenarios and outcomes. By way of example, the downside scenario includes an escalation of the trade war and/or regional conflicts, lower confidence and slower growth, whereas an upside scenario includes a deescalation of [indiscernible], lower inflation, lower interest rates and faster growth. Importantly, against these volatile scenarios, the group remains appropriately liquid and adequately capitalized. For the 6 months to 30th of June 2025, headline earnings growth is expected to be slower than the growth recorded for the first 5 months of 2025, and this is due to the particularly strong performance in the month of June in 2024 last year. More specifically, in the month of June 2024, we had some large credit provision releases and recoveries, and we do not expect these to repeat in June 2025. Turning to our guidance for the 12 months to 31st of December 2025. When we set out our guidance in March for the 2025 year, we did so based on what we knew at the time pre the tariff policy announcement and various other geopolitical developments. As previously mentioned, uncertainty around monetary policy, trade policies, and geopolitical developments is currently elevated. This is weighing on the global and local macroeconomic outlook. Despite the uncertainty and macro downgrades, we are pleased to confirm our previous guidance for our core metrics. For reference, they are as follows: banking revenue growth of mid- to high single digits in rands, banking cost-to-income ratio that is flat to down year-on-year, and a group return on equity well anchored in the 2025 Standard Bank Group target range of 17% to 20%. Looking more specifically at our net interest income and our noninterest revenue outlook in the context of the trends seen to date. You may well ask, does the slow loan growth year-to-date put full year NII expectations at risk? Yes, possibly. But it still depends on demand and interest rate developments from here. We do expect loan growth to pick up in the second half of this year. And importantly, noninterest revenue has been better than expected, which supports our confidence in our revenue guidance. We will provide an update in August as part of our interim results. Subject to market developments, we still expect the currency impact to moderate in the second half of the year as the devaluations experienced in 2024 feed into the base. We will report our financial results for the 6 months to 30th of June 2025 on the 14th of August this year. In closing, in the 5 months to the end of May, the group's operational and financial trends were strong, supported importantly by the continued momentum in our robust underlying transactional franchises, both South Africa and Africa regions. Thank you, Sarah. I will now hand back to you for questions.

[Operator Instructions] I can see the first question from Harry Botha.

Just maybe a little bit more clarity around the first half credit impairment charges, if possible, please. Should we expect any meaningful financial instruments, credit impairment charges in the first half? And can you possibly help quantify the June 2024 recoveries? Or I guess, maybe in terms of the decline that you noticed in the first 5 months, can we see a decline for the first half of 25% as well in terms of credit impairment charges?

Yes. Thanks, Harry. Overall, credit is trending as per expectations, and it is trending favorably. Previously, when we met, we spoke about peak credit charges are behind us, and that's certainly reaffirmed now. So we see continued stronger health of our clients and strong repayment ability. We do expect continued improvement. And for half year, I expect us to be probably within the range of 70 to 100 basis points. So continued improvement. You asked about the large recovery last year. There was a single name in the CIB business where we had a big write-back. As you know, we're not at liberty to disclose that. It was fairly material. And then also in our mortgage book, we also had some changes in modeling methodology on loss given defaults, and that also resulted in a one-off recovery. So it was fairly material in June 2024. And obviously, we don't expect that to repeat in June 2025 this year.

Maybe in terms of the financial instruments or sovereign credit impairments?

All right. There's some pressure in our Mozambican exposure, exposures we have in Mozambique on the sovereign, but otherwise, fairly positive trends across the continent.

So there's a question on the chat, which I'll take, and then we'll refer back to the hands. Can you comment on the performance for ICBCS?

Yes. ICBCS has performed well, particularly the metals business is doing well. They're tracking better than expected and are contributing positively towards the group's performance. There was another question then on color on the trading income outperformance. South Africa has done well on trading as well as Africa regions, a very strong performance in the 5 months. Asset classes span across FX, equities, commodities, fixed income and we've generally seen a good performance in our Global Markets business.

And then this is another one more question with regards to the share buybacks. Can you comment on the total buybacks to date?

Yes. So you remember and you've put it in the chat here, it was ZAR 4 billion in 2024. And indeed, this year, after March -- between March to now, we did another ZAR 3 billion, so it's a total of ZAR 7 billion. That obviously will give some tailwind on earnings per share, 2 1% or 2% or so. Bear in mind that the recent shares we bought only are canceled recently and obviously are still part of -- a big part of this year, our share base.

I think we refer back to the hands. The next first hand is Baron Nkomo. Try again, Baron? Okay. We'll come back to you, Baron. Maybe if you can put your question in the chat. We'll come back to you. I'm not sure what's happening with the line. Can we move to Simon Nellis?

Can you hear me?

Yes, we can.

Yes. Just maybe a few questions. First on the growth opportunity -- growth outlook. You're saying that things are developing slower than expected. Can you just elaborate on which areas have been under pressure and where you see improvement going forward? And then just on NII, you're guiding for, I think, mid-single-digit growth, but it was flat year-on-year in the 5 months. Can you elaborate again on what needs to happen to get to your guidance? And then last on the CLR, you're guiding for mid of the range, but it was, I think, slightly above 100 basis points, right? So how do you get back to the middle of the range? Do you expect a material change in CLR in the second half?

Yes. Thanks, Simon. On the growth, as I indicated in the commentary just now, very robust origination in investment banking, strong growth in the corporate loan book, much more subdued in retail and also particularly subdued in small enterprises more so than we had originally expected. In retail, we see very competitive pricing, particularly in the mortgage book, but we have seen some disbursements pick up there. We also see fairly strong disbursements in retail picking up in the personal unsecured lending portfolios, You would know, Simon, that on the VAP strategy, we've changed our strategy and are purposely dialing back our origination activity in auto loans. In BCB, also subdued lending growth throughout the beginning part of the year. But again, if I look at some of the business lending activity, it's certainly picking up and we're seeing a much stronger performance in the last 2 to 3 months, and we are expecting a better performance for the second half in both the retail and the BCB business. On NII guidance, I made the comments just now, we had guided mid to high single digits. We're probably not going to achieve that. But we are probably going to achieve outperform on the NIR guidance. And that means that overall revenue guidance should be intact, but NII under pressure certainly on the back of the slow start to the year in our retail and BCB businesses. Credit loss ratio. We are fully confident we'll be between the 70 and 100 basis in range. I think at half year already, but for the full year as well. We normally have a higher charge at the beginning of the year. So we're not too worried about that. Seasonally, we expect a stronger run into the second half of the year, as I said, should be well anchored in the 70 to 100 basis points.

Great. And can we try and go back to Baron.

Can you hear me now?

Yes.

Sure. Maybe just a quick one. What initiatives are being prioritized to ensure that the cost-to-income ratio remains flat or declines year-over-year as per your guidance?

Yes. I mean we're always extremely focused on costs, and then there's always multiple cost streams underway in the different business units. And we're currently focusing, as per usual, Baron, you would have heard us talk about the real estate footprint, professional fees only really where they are necessary, technology rationalization, but still investing in technology where it needs to be. Our amortization charge is coming down and it's also helping us with some tailwinds. And there's also various cost programs in our insurance and asset management business where we go and extract further efficiency from that business. Headcount is roughly flat at the moment, but we have had to pay and invest in some specialist skills. So we're not seeing our headcount complement growing. And then incentives will be adjusted relative to the performance of the group. It's a big variable cost incentives and if the group performance is more subdued, obviously, then there is an impact on incentives. So that's also a cost lever we have. At the moment, we are comfortable with our cost growth. We are tracking slightly better than expected. The various cost levers we are putting are bearing fruit. And even though we've put negative jaws at the moment, we expected that to be the case, and we expect the jaws to become flat to maybe slightly positive by the time of the full year and that then will give us the CTI in the low, very low 15 percentile, maybe slightly below than was printed a year ago.

Great. We go to the next hand please.

Yes, just in terms of your credit loss ratio, if you look at the trends in the [indiscernible], you've been increasing your provisions quite a bit over the last couple of months. And then if you look at how your credit loss ratio compared to our peers for FY '24, you guys were looking a lot better. So why now is your credit loss ratio reaching your through the cycle range? And then why have you been increasing your provisioning so much over the past couple of months?

Yes, I guess, First of all, there's a seasonal impact. We always have a higher credit charge at beginning of the month. And so I think that's important. I mentioned in an earlier call, I think it was Harry possibly that we have got some pressure in Mozambique, where we've downgraded the Mozambican sovereign to sort of default, but a downgrade, and we've provided for that. And then also the macro outlook has deteriorated. So I'm sure all of you appreciate. And as part of the IFRS 9 forward-looking modeling, we've done some adjustments on the forward-looking outlook, the macros. And I want to reiterate again, we are prudently provided, Our credit loss ratio is at the moment marginally above the 100 basis points top-end range of our gross ratio range. We expect it to be within 70 to 100 basis points by half year, and we expect it to be further within that range by full year. So is for us not a surprise adverse development when it comes to the credit charges. It's tracking as per our expectations.

If I could ask another question. Just in terms of your buybacks, I think at the last -- I think in March, you mentioned that the buybacks that you've done, you're trying to dilute the impact of the shares that you issued to the Liberty minorities. Now with the buybacks that you've done year-to-date, is that over and above canceling out the shares that you had to issue to Liberty? Or is it still -- you're trying to work that through that dilution?

Yes. The dilution, we issued around ZAR 10 billion worth of shares. And I mentioned earlier, we did ZAR 7 billion buyback cumulatively now. So there's still a bit more to go. But irrespective of getting to ZAR 10 billion, we'll possibly if we got surplus capital and no immediate opportunity to deploy the capital at the right returns, we can continue with that strategy. We'll keep it quite flexible. And that's important. That's why we have not actually announced a formal program because we would like to keep it flexible and only do buybacks as and when we have surplus capital, and we don't see immediate opportunities for capital deployment.

Okay. And then are you able to say in terms of the approvals that you have up to buy up to the absolute amount that you can buy or the percentage of your share capital that you can pay up to that? Can you share that or you can't share?

Yes, we need approval, obviously, of the Board, but also from the prudential authority. And as a matter of routine, we do request those approvals to give us the necessary flexibility. I don't think it's important for me to share the absolute quantum because that just gives us our headroom. It's certainly not an indication of how much we would want to buy back. So we just get those approvals of some headroom built in and then we execute them depending on our capital position. Maybe I also just want to emphasize one more thing, further buybacks for the rest of the year are less likely because we are seeing growth opportunities.

Okay. Great. We maybe -- there are no more hands. We can go back to the chat. There was an additional -- just going back to the buyback, so we can close this item out. There was additional question around the anticipated impact of the buybacks on headline earnings per share. It's relatively small. I don't know if you want to add to that, Arno.

Yes. I think I mentioned between a bit of a tailwind between 1% and 2% can easily work around, but that's what it would give once the buybacks are in the base. So an additional 1% to 2% EPS growth.

Then we've got some questions from Charles. I'll go through them one by one. How did the capital raise go in Nigeria? Was there an opportunity to increase your stake? Any other opportunities to increase stakes in Angola and Kenya? Maybe you can comment on those two.

Yes. The capital raise went fine, put additional capital in. Also importantly, just recently, I think, 1 or 2 weeks ago, the Central Bank of Nigeria completed the capital verification process, so this capital can quantify now as equity. All of the banks have to go through the capital verification. So that's all done. We did not increase our stake. So the rights issue was taken up by all of the shareholders. We like to buy more in Angola, you know about that, and we think that's an attractive proposition. Regrettably, it's taken quite a bit of time with Angolan authorities to get that done. So we are still working through the IPO of our Angolan entity and getting our shareholding to 75% with the Angolan authorities. There have been no material changes in our stake shareholding as well.

Okay. The next question is, how do you assess the risk of the recent CBN announcements and the potential halting of dividends, obviously, in Nigeria?

That only applies to certain banks and not to ITC or to our bank. It doesn't apply to us.

The next one is around FX headwinds. What gives you the confidence that FX headwinds will be lower in the second half?

Yes. I mean the big devals were in Nigerian Naira and Angolan Kwanza at the beginning of 2024. So that's now still being worked into the base. We've also seen fairly strong currencies in the Kenyan shilling, Ugandan shilling and I'm sure you would have noticed the Ghanaian Cedi, very strong performance in May, and I think, a 30% depreciation. So that should all lower headwinds. We've seen some depreciation in the year-on-year in the Nigerian naira, Angolan kwanza and Tanzanian shilling that's still from the large devals we had last year. So we already remember at the beginning of last year, well, when we reported in March, we had a 9% difference between ZAR and constant currency growth. I think it was 9%. And you can see now already it's much less than that. So the trend will continue. I spoke about mid-single-digit earnings growth in constant currency and around 10% in rand, so the consumer gap is much less than 9%.

And the last question from Charles is can you comment on the impact of global geopolitics on provisioning levels now versus in December?

Yes. Charles, it's what I said earlier on. So you heard me say we sort of have done some adjustments on the forward-looking outlooks per macroeconomic scenarios. We have to do this as part of the IFRS 9 modeling, that's in our base now. So the heightened geopolitical uncertainty is fairly to P&L through that machos.

Those are Charles. Hopefully, those answer your questions, Charles. Then we've got a question from [ Combelo ]. Could you please provide more detail on where you're seeing an increased client base specifically by segments and by region. And I would say it's really quite broadly based, and we'll certainly provide more detail at results with regards to clients' numbers. I don't know if you want to add to that, Arno.

Yes, we focus also on private banking clients, and we continue to grow our client base in private banking and across the segments in small enterprises, CIB, everywhere else we're growing our client base.

Okay. Great. I can see we've got a hand. If we can unmute the line, is an old hand.

Yes. In the sense, I think you made mention of increased competition you're seeing within the mortgage space. Are you able to call out whether you're seeing -- like which players you're seeing more active in the space and just in terms of the dynamics you're seeing in that segment?

Okay. I wonder if I can ask Sayuri, who is the Head of the Retail Business CFO to come on screen and then just comment on that, please, Sayuri.

Thanks, Arno, and thank you for the question. So yes, we are seeing more pressure come through and continued pricing pressure actually in the mortgage space. And that is across many of our competitors. So we're seeing that due to the high levels of ROE in the home services business that, that is attracting many of our competitors. So both competitors who are already in the space as well as some of the new players as well. So we are seeing competition across the board really in that space coming through. And you'll recall, just in that home services space, we did in -- during the COVID period, where we were the home services providers who stayed in the market. We do have a lot of their portfolio, which remains with us now, but -- and at higher margins, actually. But as we see the competition come in, some of that new business is coming through at low margins because of the pricing pressure with much more competition included there as well.

Yes. So you haven't really -- because Discovery has been active in that space, and I think Capitec is also more active. So you haven't seen -- you can't say that you've seen them more than the other players, it's across the board or...

We're definitely seeing them. So we're seeing Discovery, Capitec. We're seeing some of the other banks as well. So it is across the board in general as well.

Okay. Great. I can't see any more hands, and I think we've answered all the questions on the chat. Arno, would you like to make any closing comments?

Yes. Thanks, everyone, for dialing in. We will release interim results on the 14th of August. And of course, I look very much forward to engaging with you then and really unpacking the performance in detail. I think that's all for this afternoon then, and I wish you a good Thursday evening.