Credit appetite, especially in SA, boosts Investec earnings

Investec group CEO Fani Titi has hailed the resilience of the group’s lending book in SA and the UK, with the group seeing an uptick in credit appetite from corporate and private clients, particularly in the domestic market.

Titi said on Wednesday that growth in lending in the UK, particularly in the mortgage business, was muted due to the high level of interest rates in that country.

Ruth Leas, CEO of Investec Bank in the UK, said they were turning the corner in the mortgage business and in acquiring new private clients.

“We do continue to gain market share, and of course with interest rates expected to come down ... we expect growth to accelerate in our lending activities. From a private clients’ perspective, we have picked up our efforts on client acquisition and that has gone strongly, though not as strongly as in the prior years when mortgage growth was very strong,” said Leas.

“We have, however, seen activity levels stabilise in the mortgage space and pipelines are picking up.”

Investec expects headline earnings per share (HEPS) for the year to end-March to rise as much as 10.6% from the previous corresponding period’s.

HEPS are expected to come in at 70p-74p, or 4.8%-10.6% ahead of the previous year’s 66.8p, which includes the cost of executing strategic actions.

The group sees adjusted operating profit before tax of £866.9m to £909.6m, up from £818.7m a year ago. The UK business, including Rathbones Group, expects adjusted operating profit to be at least 15% higher than the previous year, while that of Specialist Bank is expected to be at least 30% higher.

The Southern African business’ adjusted operating profit is expected to be at least 10% higher than the previous year’s R8.9bn, while Specialist Bank’s operating profit is forecast to be at least 5% higher than the previous year’s R8.7bn. Return on equity is expected to be above the midpoint of the group’s 12%16% target range.

“Higher revenue was supported by balance sheet growth, the higher interest rates environment and progress in our growth initiatives,” said Titi. “Fixed costs expenditure reflects the continued investment in people and technology for growth, inflationary pressures and higher regulatory costs. Variable remuneration grew in line with profitability.”

Core loans from Specialist Bank increased 7.1% to £30.8bn, driven by corporate lending in both UK and SA, and loans to private clients in SA.

Customer deposits increased by 5.5% to £39.5bn, while funds under management in the group’s wealth and management business increased by 3.6% to £20.5bn.

The group expects to report a credit loss ratio around the midpoint of the through-the-cycle range of 25 basis points (bps) to 35bps.

In SA, the expected credit losses benefited from recoveries from previously written-off exposures and the credit loss ratio is expected be below the 8bps reported in the interim results in November 2023.

The UK is expected to report a credit loss ratio within the guided range of 50bps-60bps communicated in November 2023 and above the upper end of its through-the-cycle range of 30bps-40bps.

“Given the challenging macroeconomic and elevated interest rate environment, we have seen idiosyncratic client stresses with no evidence of trend deterioration in the overall credit quality of our lending books,” Titi said.

Nishlan Samujh, the group’s finance director, said: “The expectation is that while rates will come down, we will see them come down at a much more muted level. From our perspective, we remain active around acquiring clients, particularly in the private clients’ space in both geographies.”

The group’s share price was 3.2% higher at R121.39 at close of trade on the JSE on Wednesday.