Standard goes green to the tune of R250bn

Bank confident of beating clean energy financing target

● Africa’s biggest lender, Standard Bank, which on Thursday reported a near 30% jump in annual profits, has mobilised R105bn since the beginning of 2022 to support the continent’s energy transition, and says it’s confident of exceeding its 2026 target of providing more than R250bn in sustainable finance.

With many parts of Africa lacking the necessary infrastructure and a global move towards more environmentally friendly power solutions, Standard Bank sees an opportunity in the green energy space.

“The energy transition is among the most important social and economic themes of our lifetime. It is here where the greatest risks arise for Africa, and also where a great deal of money can be made and the largest possible impact achieved,” Group CEO Sim Tshabalala said at the company’s results presentation.

“We have set ourselves what we thought was an aggressive target of R250bn by 2026 ... we’re quite confident that we will exceed the target,” Tshabalala told Business Times.

Tshabalala wouldn’t forecast the extent to which the company could exceed the target, saying that would depend on market dynamics. “At the moment, if things carry on as they are, we’re doing very, very well, but there could be market dislocation factors.”

Such factors could include a deterioration in geopolitics, which could lead to a reallocation of assets, resulting in a slowdown in projects.

“The pipelines are very robust and they’re very solid. If things were to carry on and we were to drill down on all those pipelines, we would do very well. I’m sure we’d exceed the target,” Tshabalala said.

In 2023, Standard Bank mobilised more than R50bn in sustainable finance, more than R35bn of which came from South Africa, its biggest division. Coupled with the country’s commitments to reduce its greenhouse gas emissions, financing clean energy projects will undoubtedly mitigate the effects of load-shedding, which hit record levels last year, leaving businesses and households without power for as long as 12 hours a day.

The economy is estimated to be losing about R1bn a day during load-shedding. The trend has continued, with rolling blackouts implemented almost every day this year so far.

However, Standard Bank said the situation was expected to ease relative to last year, “driven by an increase in Eskom supply and the ongoing expansion of private sector generation capacity”.

The bank financed eight government-procured projects last year, and provided funding for two private renewable energy projects in the same period. The bank’s renewable energy funding for the past year was more than five times that of its financing of non-renewable energy. That exceeds the average among banks that signed up for the Net-Zero Banking Alliance, where renewable energy funding is 92% of nonrenewable funding, Standard Bank said.

“Our commitment to being the leader of the just transition for Africa is unshakeable,” Tshabalala told investors.

However, Standard hasn’t written off funding brown energy projects, saying it was willing to support non-renewable energy investments where the social and environmental benefits outweighed their costs, and where they were part of credible transition plans.

This week, the bank reported headline earnings of more than R42.9bn for the year to December 31, a jump of 27% from the R33.9bn recorded a year earlier. In addition its base of active customers rose 6% to 18.8million.

The stellar performance was boosted by its African operations, which contributed 42% to group headline earnings.

Africa Regions delivered an outstanding performance, CFO Arno Daehnke told investors at the company’s results presentation.

“A larger balance sheet, higher interest rates, higher transaction volumes, recovering international trade and a strong growth in trend revenue all contributed to an overall outcome of R18.2bn in earnings, up 49% year on year,” Daehnke said.

The bank’s east, west, south and central African regions all delivered improved performances in headline earnings and return on equity.

“Despite macroeconomic issues which have emerged over the past 18 months regarding sovereign vulnerabilities and weakening exchange rates, we remain certain that the value of our Africa Regions portfolio is in its diversity and in its growth profile,” Daehnke said.

The bank remains confident about economic growth prospects in the portfolios of the 19 countries in its Africa franchise.

Economic growth in sub-Saharan Africa is expected to reach about 4% in 2024, up from about 3.3% last year, the bank said, adding that most African economies are either approaching or exceeding pre-pandemic levels.

Growth in some east and west African countries could even outpace the rest of the continent and the world, said Yinka Sanni, CEO of the bank’s Africa Regions.

The rest of Africa is set to outpace South Africa’s growth for 2024, which under the current policy trajectory is 1.2%, according to Standard Bank’s projections, but Tshabalala is confident the country could catch up.

Tshabalala said South Africa was undergoing a number of structural reforms — including a focus on electricity and logistics — which could bolster its economy in the medium term if they were implemented quickly enough.

“The faster they get done, the bigger the chance of us growing at 3% in the period from roughly from 2027 to 2030 ... in fact, after 2025,” he told Business Times.

The energy transition is among the most important social and economic themes of our lifetime

Sim Tshabalala CEO of Standard Bank Group