UNAUDITED RESULTS ANNOUNCEMENT
For the year ended 31 December 2021
33% Profit after tax (Pm) 204
2020: P302 million
Economic Climate Global economy
The persistence of COVID-19 infections across the globe in 2021 saw corporations continue to grapple with the economic impact of this pandemic. Governments continued with interventions to reduce the impact on communities and businesses. The first half of the year felt the most impact as restrictions were still prevalent, with travel to most countries restricted and low vaccination rates slowing down re-opening of economies. This was also heightened by the fast mutation of the virus making governments very strict on controlling movement in and out of regions. H2 of 2021 saw a slow recovery as most economies started to open up and return to normalcy, albeit at a slow rate. The IMF projects global GDP growth to shrink from 5.9% in 2021 to 4.4% in 2022.
Most countries dropped several Covid-19 restrictions resulting in a rush to reinstate business activities. This saw a quick boost in trades across the globe which gave a positive outlook to a return to normalcy and uptick in GDP forecasts across most markets.
Local economy
Following the easing of restrictions throughout 2021 and the lifting of the State of Emergency (SOE) at the end of September 2021, improvement in economic activity was evident, creating expectations of a rebound in economic growth. The World Bank expects an 8.5% expansion at the back of improved diamond activity, evidenced by increase in global demand. The easing of restrictions has also boosted activity in the transport and tourism industries which were the hardest hit. An uptick in administered prices is still expected to challenge the landscape amidst rising inflation.
Financial Performance of the Bank
The operating landscape posed a difficult environment for businesses, requiring the Bank to adapt and respond with agility as well as making sure clients and partners are supported to stay afloat throughout the year. The Bank upgraded and transformed its digital platforms to enable clients to continue operations even throughout the toughest restrictions.
Further, the Bank quickly deepened its Love Your Customer (LYC) principles in embodying an empathetic role, to motivate staff as well as to assist clients largely affected by the COVID-19 pandemic. The Bank did this by extending interventions in the credit space that enabled businesses to focus on survival with appropriate moratoria on some credit covenants.
18%
Loans and advances (Pb)
18.0
2020: P15.3 billion
The interventions applied saw the Bank demonstrate growth in its balance sheet and remain profitable as summarised below.
Revenue
Total revenue posted a healthy growth of 6.5% on prior year despite the subdued economic environment in the first half of the year, on the back of Covid-19 restrictions. This growth was driven by a healthy balance sheet growth and increased customer transaction volumes. Net interest income (NII) grew by a respectable 3%, despite systemic liquidity pressures and loan-book yield reductions, while non-interest income surged up by 13%, mainly driven by fees and commissions income scale.
Despite double-digit growth in the Bank’s balance sheet (18% in loans and advances, 15% in deposits), NII only saw a 3% growth, the muted growth being a subset of an increase in interest expense (1.9% cost of funds for the year under review, compared to 1.6% in the preceding year) evidencing the resultant liquidity pressures of a post Covid-19 economic landscape. Loan book growth was driven by the Consumer and High Net Worth (CHNW) segment as the Bank improved its value proposition for the more secure Employee Value Banking (EVB) subsegment, which delivers better margins as well as a notable growth in the Corporate and Investment Banking (CIB) book. The Bank continues to yield net positive margins as a result of the focus on margin management as well as focus on driving scale.
NIR similarly benefited from improved business activity, as well as synergies created by the Bank’s digital transformation journey and a Universal Financial Services Organisation (UFSO) client service approach to deliver a 13% year on year increase. The ending of the national State of Emergency, and the lifting of travel and trading hours restrictions benefited sectors across the economy, thus delivering a 22% increase in net fee and commission income. This was further supported by key investments in systems (Core Banking system upgrade, plus the launch of the Bank’s informal segment, omnichannel payments and remittances platform, Unayo) and increased point of representation (POR) footprint point of sales (POSs), and automated teller machines (ATMs). Foreign exchange (FX) revenue reflected slight growth (6%) from improved business activity, boosted by activity in the latter part of the year, new business opportunities and strategic focus in marketdifferentiating structured solutions.
Credit impairment charges
14.6% Deposits (Pb)
18.2
2020: P15.9 billion
Credit risk management has remained a key focus area in the midst of the disruption caused by Covid-19, and the prolonged corporality and continued mutations have made recovery by most businesses difficult as restrictions persisted into most of 2021 up to mid Q3.
Jaws (%)
2.4
2020: (20.7%)
The Bank continued to support clients through extension of moratoria as well as through reviewing and re-extending some restructures as timing of re-opening of the economy became uncertain. However, credit impairments grew at a reasonable rate with the exception of a once off incident involving a group of companies that hit our impairments with a P94 million impact. As a result of this event, our impairments grew by more than 100% and the Credit loss ratio closed at 1.3% (2020: 0.3%), but still within our risk appetite. With the economy re-opening at the end of Q3, signs of recovery were noted in the tourism industry; impairments started to show a slower growth rate as a result. The impact of much anticipated retrenchments was minimal and a much healthier, higher quality advances growth is expected in upcoming years due to our engagement and credit origination strategies.
Operating expenses
Due to the muted growth in revenues, cost optimisation drives were enhanced to ensure efficiencies and optimisation of benefits from our cost base. Focus on platforms to drive future ready operations saw our IT investments increase, albeit negated by a reduction of costs in other areas. Investment was also made into improving efficiencies in our processes to focus on ease of doing business with our clients as well as to focus our people’s energies on more value adding engagements to partner with our clients and other third parties. A wellmanaged 4% growth in our costs, totaling P666m for the year (2020: P640m) is reflective of these drives despite the challenges posed by Covid-19. It is expected that, due to the investments made in 2021, our ability to partner with more players as well as provide more business opportunities for our clients, to carry them along our growth journey, will be significantly enhanced. The upgrade in our core banking platform is the first of these investments, enabling more capabilities in future.
Capital and liquidity management
The Bank remains adequately capitalised, posting a strong capital adequacy ratio, of 17.30% (2020: 16.92%), well above the minimum regulatory requirement of 12.5% (2020: 12.5%) and well within internal risk appetite. Capital management remains a strong key measure and the Bank invests in an efficient capital allocation and consumption strategy.
Amidst the liquidity challenges posed by the reduced levels of business activity over the past two years, the Bank managed to close with a strong liquidity position well above the approved risk appetite and tolerance limits. The prudential liquidity measure closed at 12.67% in 2021, exceeding the minimum regulatory requirements of 10.0%. Other liquidity metrics such as the internal stress testing and net stable ratios remain in excess of internal requirements.
0.38% CAR (%)
17.30
2020: 16.92%
Outlook
The easing of COVID-19 infections and improving vaccination rates have made for easier global economic activity, with most borders opening across the world. With the end of SOE locally, making for a revival of the economic landscape, most businesses are back to trading. The World Bank projects a rebound in economic growth. With the emergence of the Russia–Ukraine conflict, there are growing uncertainties across the world; at this point, the situation is developing and impact on economic activity is being assessed. However, this geopolitical strain and risk is already evident in the surge in oil prices, in addition to concerns around global food supply. Inflation is expected to be on the rise at the back of these developments.
The Bank is closely monitoring and assessing the potential impact of the Russia-Ukraine conflict to proactively manage any imminent threats. The Bank engages its clients and partners regularly, having held a first stakeholder engagement in March 2022 to assess the developments and available data. This engagement mainly focused on unpacking the international relationships of Russia with Africa and the western world as well as understanding the potential impact of the sanctions imposed on Russia by developed countries. No immediate direct impact on the Bank has been identified yet. The length of the conflict and depth of the sanctions on major supplies by Russia could have an impact especially in the diamond and oil industries, food and fertiliser sectors and on major currencies.
Following the lifting of the SOE, the Bank continues to support its clients by way of restructures and availing facilities to revive business activity, with measures in place to also protect our balance sheet. The Bank looks forward to more business opportunities on the back of the electronic platform developments that were birthed during Covid-19 to improve the ease of doing business with our customers. Opportunities for diversification in our balance sheet, and, effectively, our revenues have made for a positive longer-term outlook.
Chief Executive C. Modise