South Africa’s largest banking group Standard Bank is looking more towards the wider African continent for growth as it faces tighter market conditions back home. And the ambition to grow outside the African continent seems to have disappeared.
The emphasis on the African continent could be helped by the Chinese connection. Standard Bank runs with about 20% ownership by the Industrial and Commercial Bank of China. This connection may be a useful to African deal flow given the aggressive penetration of the Chinese Inc in search of commodities.
Standard Bank reported this week financial results for the year ended June where it reemphasized its African ventures. This comes after the bank dropped out of key investments outside Africa including a venture into Argentina and Russia.
The 2013 interim report by the new dual leadership of Sim Tshabalala and Ben Kruger (Joint Chief Executives), points to one critical thing. The strategic path drafted towards the end of Jacko Maree’s tenure as CE of the group remains intact.
The group reports that further progress has been made across the African continent to develop the group’s franchise in chosen business lines. About 27% of growth in headline earnings in six months ended June is accounted for by African businesses. “This supports our Africa-centric strategy”.
Standard Bank also reports that it undertook “a painful but necessary” restructuring process within Corporate and Investment Banking (CIB) operations outside of Africa. “This has resulted in a more focused balance sheet and lower cost base for these operations and has enabled the financial performance to improve”.
Although the stand-alone returns delivered by these (outside Africa CIB) operations are not at a satisfactory level, these operations remain important components of our strategy to access global skills and investor demand for the benefit of our CIB customers across Africa”.
The group will continue to evaluate and refine the appropriate business model for these operations within the compliance framework required by the relevant regulatory authorities”.
Standard Bank reported 14% growth in income from banking activities to about R36.5bn. Net interest income increased 20% to R18.8bn while non interest revenue improved 7% to R17.7bn.
The bank said trading environment was challenging with particular emphasis on the South African market.
“The operating environment in the first half of the year remained challenging against an uncertain global backdrop. While the US economy is looking relatively healthier, concerns remain over subdued growth prospects in the European Union (EU) and, lately, China. The International Monetary Fund (IMF) has revised its outlook for global growth downwards on the back of increasingly softer demand in key emerging market economies and a more protracted recession in the EU. Global growth is now seen by the IMF at 3.1% in 2013, unchanged from 2012”.
“The uncertain global outlook was reflected in increased financial market volatility particularly in May and June 2013. Talk of the potential tapering of the US Federal Reserve’s quantitative easing sparked fears of a withdrawal of funds from emerging markets. The rand was particularly hard hit as the currency faced not only external pressures but internally driven pressures too in the form of lower growth, concerns over the fiscal balance and continuing labour unrest, concentrated mostly in the mining sector”.
The group added that “South African households continue to struggle with high overall debt burdens coupled with sluggish income growth and rising inflation. Growth in household consumption expenditure slowed for the fifth consecutive quarter during the first quarter of 2013 to 2.4%, broadly in line with the growth in real disposable income. The moderation in spending growth can be attributed to slowing growth both in disposable income and in unsecured lending extended to households as credit providers tightened their lending practices. The stubbornly high household sector debt has compromised the ability of households to take on further debt”.
The group however noted that “Underlying momentum in our businesses across the continent is strong and we continue to build on the foundation laid in previous years. We are appropriately invested in key African countries and are leveraging the group’s strong South African platform developed over many years to grow our businesses and deliver value to our clients”.
Standard Bank noted that the global economic recovery remains weak and operating conditions across Africa are being influenced by softer commodity prices. “While we expect that cost pressures will continue in the second half of the year given the weaker rand, we remain confident in our ability to grow revenues in the challenging environment. Substantial progress has been made in increasing our presence and profile in our main business lines on the African continent but we continue to be mindful of difficult conditions affecting our clients and price appropriately for risk.
Standard Bank has established an impressive African network that touches countries like Zambia, Zimbabwe, Uganda, Tanzania, Swaziland, South Sudan, Nigeria, Namibia, Mozambique, Mauritius, Malawi, Lesotho, Kenya, Ghana, DRC, Botswana and Angola.
Standard Bank’s northwards venture is now standing as an interesting contrast against that of its main South African competitor Absa Group. Absa’s African hopes have been rolled back and repackaged under the name of its English parent company Barclays. It will be interesting to watch what prevails between the two distinct strategies, an expansion from the South led by a London originated global brand Barclays versus a home branded drive. And another home branded expansion by FirstRand group is also taking shape. And the Nedbank/Old Mutual story is more complicated.