| Wed 7 Mar 2007, 8:30 | | Standard Bank final results |
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The group's diverse spread of businesses were buoyed by a widely favourable operating environment and measured against a high base, the group's earnings growth target of 10% above CPIX inflation was exceeded by a substantial margin. Corporate & investment banking loans and advances grew by 32%, as a result of renewed demand for corporate term lending in South Africa and collateralised lending outside of Africa. Personal & business banking reflected strong growth in lending assets of 32%, as a result of record home loan registration volumes driven by strong demand for housing. Robust asset growth in both current and prior years and buoyant transactional activity from both consumers and corporates contributed to total banking income rising 25% for the year under review. Revenues from client related activities were positively impacted by rising prices and volatility in commodity markets. Higher volatility in foreign exchange and interest rate markets also spurred client trading volumes. Investment management & life insurance benefited from a strong South African equity market and achieved a 33% weighted average investment return. As expected, the low level of credit losses experienced in 2005 was not sustained in 2006. The return to a net credit impairment charge in corporate & investment banking contrasts with the substantial credit recoveries made in the prior year. Personal & business banking's credit loss ratio increased significantly in card debtors following the group's focus on higher risk and higher yielding segments.
Growth of 27% was achieved with strong increases recorded across the group's operations. Personal & business banking was up 25% and corporate & investment banking up 29% boosted by good growth in operations outside Africa. Net interest income benefited from strong growth in average assets of 36%. The group's net interest margin reflects an 18 basis points decline for the year to 2.79% mainly due to the fast growing portfolio of lower margin corporate assets, R115 billion of trading assets compared to R74 billion the previous year and an R11 billion increase in surplus liquidity assets. Non-interest revenue comprised 53.7% (54.4%) of total banking income and rose 23% following growth in fee and commission revenue of 18%, trading revenue of 30%, and other revenue of 39%. On a normalised basis, headline earnings per share grew 20% and a return on equity of 25.2% was achieved.
Dividends
The dividend cover ratio of 2.5 times normalised headline earnings per share has been maintained. A final dividend of 176cps (145cps) has been declared, an increase of 21%. The total dividends declared in respect of the 2006 year increased by 20% to 320cps (267cps).
Prospects
The global economy has continued to enjoy robust growth over the last three years despite very high oil prices, global political uncertainty and generally tighter monetary conditions. Global growth is expected to slow in 2007 due to an easing US economy, the correction of current global imbalances and softer commodity prices. While growth in developing economies is expected to moderate, it should remain relatively strong. In South Africa, the increasing interest rate cycle appears to be approaching its peak. The higher interest rates, combined with a record-high household debt-to-income ratio, are expected to curb durable consumer spending. The impact of this on retail activity should be felt towards the end of 2007. However, as the momentum in consumer spending decreases, a shift from consumer-led to corporate-led economic growth is occurring. The supply side of the economy is expected to be the main driver of growth, which is likely to see current domestic growth levels maintained. This will be supported by focused initiatives including the South African Government's Accelerated and Shared Growth Initiative for South Africa (ASGISA). In this environment, lending growth in personal & business banking is set to slow off its high base. Higher interest rates will benefit interest margins but this will be offset to some degree by increased credit losses. A slowdown in consumer spending and below inflation fee increases are likely to restrain growth in fee income and will require focused cost management. Cost pressures from regulatory related system and procedural implementations are expected to continue. Corporate & investment banking is expected to benefit from growth in South African infrastructural and empowerment financing and a continued increase in corporate credit demand. Trading desks locally and internationally should continue to enjoy active client flow from the commodity and foreign exchange markets. Investment management & life insurance earnings are linked to the performance of South African investment markets. Despite the recent volatility in equity markets, South Africa's economic prospects remain favourable which should have a positive impact on investment performance in 2007. Liberty Life is confident that, subject to actuarial assumptions being met, real growth in embedded value will be achieved in the year ahead. In the year ahead economic conditions in the markets in which the group operates are thus likely to be less favourable than in the last few years. The board is nevertheless confident that with the high calibre of its staff and its portfolio of growing businesses, the group will be able to deliver on its financial objectives. The group's principal financial objectives for 2007 remain unchanged -- a normalised return on equity of 24%, and normalised headline earnings per share growth of South African inflation (CPIX) plus 10 percentage points.
