Standard shrugs off Liberty, Kenya crisis

Results applauded in long and tough game of African banking

REVENUE from Standard Bank’s African operations is still under pressure as Nigeria’s economy struggles and the commodities recovery remains on the sluggish side.

“Overall, Standard Bank produced a solid set of results in a macro environment that was extremely weak in South Africa and Sub-Saharan Africa during the period as well as [getting] a very poor result from Liberty Holdings,” said Adrian Cloete, portfolio manager at PSG Wealth.

Liberty’s R1.5-billion headline loss resulted in parent Standard Bank’s headline earnings growing only 3.7% compared with 8.5% growth from its banking operations. Standard Bank owns 55% of Liberty.

One had to strip out a lot from lenders’ results to get down to the banking numbers, said Brad Preston, chief investment officer at Mergence. “With Nedbank you have to take out Ecobank and with Standard Bank you have to take out Liberty to get a view of what the pure banking operations did,” he said.

After a banking crisis that led to an alarming number of Kenya’s 43 banks going under — costing the central bank about KS15-billion (R1.92-billion) — regulatory reforms introduced to curb failures in the region had an impact on earnings.

Ben Kruger, joint CEO at Standard Bank Group, said on Thursday the company was pleased the Kenyan government had reacted quickly to implement measures to limit the fallout from the failure of banks in Kenya.

Preston said: “The rest of Africa businesses are going to be tough. Nigeria is definitely a challenging environment. Until we see the currency being valued properly, it’s going to be very tough there.”

Nedbank subsidiary Ecobank faced similar pressures, which was evident in the group’s income statement. Ecobank ended the 2015 financial year, with a R676-million loss. During 2016, this figure was reduced to a R125-million loss.

Analysts say the investment in Ecobank is a long-term one, so it is likely that the value of this partnership will only be realised when economic conditions across the continent begin to pick up, which may take several years.

“If you look at Sanlam, Nedbank, and all the businesses that have properly invested and built a big footprint across Africa — they’ve shown that it is a long and tough game. It’s not easy. You don’t just go in there and suddenly there are great returns,” Preston said.

However, he said, diversification had come through for a lot of these companies, balancing out the impact from regions where they have faced headwinds.

“It has been a very tough environment, but they’ve managed to produce decent results across the board,” said Preston.

Of particular concern in Standard Bank was a slowdown in vehicle and asset finance, which grew only 1%, lagging Nedbank, which was up 7.6%, and Barclays Africa up 4%.

It’s a very tough environment, but SA’s banks managed to produce decent results across the board

“New car sales are down and they’re not going to grow by much in the next year.

“The businesses with greater exposure to new car sales will be affected. Because of the affordability issues, the banks exposed to the second-hand market, such as Nedbank, will fare better. That might be why Nedbank’s results were better.”

Standard Bank was underrepresented in the vehicle and asset finance segment, Cloete said, so one had to be careful when looking at this segment’s result and extrapolating it to the rest of the industry.

Wesbank’s numbers, out next Thursday when FirstRand posts interim results, would complete the picture on the state of the vehicle-finance industry.

“To get a decent indication of what’s really going on there, one would have to wait for Wesbank’s results,” he said.

“Of course, it’s quite a significant portion of their business so there will be a lot of interest on that side.”