20 AUG - 03 SEPT

Zambian Business Times - - BUSINESS REVIEW -

Stan­dard Bank is fo­cus­ing on clients, digi­ti­sa­tion and in­te­gra­tion in re­sponse to chang­ing client ex­pec­ta­tions and new forms of com­pe­ti­tion, says CEO Sim Tsha­bal­ala.

At the pre­sen­ta­tion of Stan­dard Bank Group re­sults for the six months to June, where head­line earn­ings in­creased 5% to USD$0.95bil­lion, he said the group wel­comed in­creased com­pe­ti­tion, which, although un­com­fort­able at times and although it puts pres­sure on fees and com­mis­sions, was good for the busi­ness and its clients.

But, he added, it is es­sen­tial that new dig­i­tal en­trants fall within fi­nan­cial services rules and reg­u­la­tions.

The bank re­ported an im­proved re­turn on eq­uity of 16.8% (16.1%), creep­ing up to its tar­get of 18% to 20%.

Bank­ing head­line earn­ings grew 6% to USD$0.87 bil­lion, off­set to some ex­tent by a de­cline in other bank­ing in­ter­ests and Lib­erty’s con­tri­bu­tion, although Lib­erty’s turn­around is on track.

Cor­po­rate and in­vest­ment bank­ing head­line earn­ings were up 8% at USD$0.42 bil­lion, and Africa head­line earn­ings were up 20% to USD$0.28 bil­lion, or by 32% in con­stant cur­ren­cies, with a re­turn on in­vest­ment of 25.4%.

At Stan­dard Bank SA net in­ter­est in­come grew just 1% while head­line earn­ing were down 3%.

There was pres­sure on costs, with group op­er­at­ing ex­penses up 6% and the cost-to-in­come ra­tio at 60.8% from 59.8% in the pre­vi­ous year. Tsha­bal­ala made it clear that cost con­tain­ment would be a ma­jor fo­cus over the next six months, although IT spend would con­tinue to es­ca­late.

Tsha­bal­ala said the re­sults re­flected dis­ci­plined strat­egy ex­e­cu­tion against a dif­fi­cult macroe­co­nomic back­ground.

The fo­cus on im­proved cus­tomer ex­pe­ri­ence is pay­ing off, with client com­plaint vol­umes fall­ing by 13% and a 31% year-on-year de­cline in bank­ing om­buds­man com­plaints.

The group con­tin­ues to gain clients in Africa out­side South Africa, with ac­tive client num­bers grow­ing 4% to five mil­lion cus­tomers.

Tsha­bal­ala told Money­web Ra­dio that the bank­ing in­dus­try is “go­ing through a seis­mic change”, where there is an ac­cel­er­at­ing trend to­wards use of elec­tronic chan­nels and less phys­i­cal chan­nels. He said the bank had suf­fered mar­ket share loss, but this had sta­bilised and it was now re­gain­ing mar­ket share.

Mo­bile trans­ac­tions are grow­ing at a high rate, re­sult­ing in re­duced fees and com­mis­sions for banks.

Banks’ phys­i­cal dis­tri­bu­tion net­works will be smaller in fu­ture, and while Stan­dard Bank hasn’t re­duced its num­ber of branches, they are op­er­at­ing on less square me­ter­age. With in­vestor’s minds fo­cused on banks’ ex­po­sure to state-owned en­ti­ties (SOEs) and the po­ten­tial risk they face from land ex­pro­pri­a­tion with­out com­pen­sa­tion, Tsha­bal­ala said Eskom and SAA are now ap­pro­pri­ately gov­erned and that pro­fes­sional man­age­ment is be­ing put in place. The group is closely mon­i­tor­ing and ac­tively manag­ing its ex­po­sure to SOEs.

“We are much safer and sounder to­day as a con­se­quence of the in­ci­dent.” PAGE 5

He called for faster and more de­ci­sive ac­tion to re­store SOEs to sus­tain­abil­ity though, warn­ing that Eskom con­tin­ues to be a fis­cal risk.

Achiev­ing sig­nif­i­cantly faster growth in South Africa will re­quire faster re­forms, he said, with at­ten­tion to broad­band and fi­nal­i­sa­tion and clar­ity on reg­u­la­tions, in­clud­ing the Min­ing Char­ter and the Min­er­als and Pe­tro­leum Amend­ment Bill, and res­o­lu­tion of the land ex­pro­pri­a­tion with­out com­pen­sa­tion is­sue.

Tsha­bal­ala said Con­sti­tu­tional amend­ment to Sec­tion 25 for land ex­pro­pri­a­tion isn’t nec­es­sary. Im­prov­ing land re­form and hous­ing pol­icy out­comes so that peo­ple have de­cent places to live is a mat­ter of strength­en­ing pub­lic sec­tor ca­pac­ity and pub­lic-pri­vate part­ner­ships, he said. Gov­ern­ment needs to clar­ify a con­sti­tu­tional po­si­tion that sup­ports eco­nomic growth and doesn’t dampen in­vest­ment con­fi­dence and weaken prop­erty rights. He told Money­web Ra­dio that Stan­dard Bank has a size­able prop­erty port­fo­lio and a size­able agri­cul­tural prop­erty port­fo­lio – and the sec­tor is con­tin­u­ing to grow and is in­vest­ing in plant, ma­chin­ery and live­stock.

Sec­tion 25 is clear and sets out cir­cum­stances un­der which land can be ap­pro­pri­ated, he said.

His read­ing is that what the rul­ing party and Pres­i­dent Cyril Ramaphosa have said is that the changes [to the Con­sti­tu­tion] will make it more ex­plicit and much clearer on the cir­cum­stances in which ex­pro­pri­a­tion can hap­pen.

Land ex­pro­pri­a­tion is aimed at pro­mot­ing re­dress, ad­vanc­ing eco­nomic de­vel­op­ment and in­creas­ing agri­cul­tural de­vel­op­ment. When Ramaphosa’ s an­nounce­ment was made, credit de­fault swap spreads hardly moved, Tsha­bal­ala said, in­di­cat­ing that so­phis­ti­cated in­vestors un­der­stood that clar­ity may ac­tu­ally im­prove eco­nomic ac­tiv­ity.

“Surely im­prov­ing land re­form and hous­ing pol­icy is a good thing,” he said, but that re­quires ca­pac­ity in the state and ac­tion in the state to strengthen the pub­lic sec­tor and to draw on pub­lic pri­vate part­ner­ships.

Tsha­bal­ala said that if the Con­sti­tu­tion clar­i­fies how sus­tain­able land re­form and eco­nomic de­vel­op­ment are go­ing to hap­pen, “we will be in a bet­ter place”, es­pe­cially if there is jus­tice for land own­ers and those hun­gry for land.

Stan­dard Bank is “san­guine, we are en­gag­ing and not con­cerned,” and be­lieves there will be a dis­ci­plined ex­e­cu­tion of land pol­icy.

Tsha­bal­ala doesn’t ex­pect land ap­pro­pri­a­tion with­out com­pen­sa­tion to cause wide­spread risks to prop­erty rights or to fi­nan­cial in­sti­tu­tions lend­ing to prop­erty own­ers.

Asked by Money­web Ra­dio about the 2016 fraud scam in Ja­pan, where the bank lost US$22.5mil­lion ( ZAR300mil­lion), Tsha­bal­ala said the bank was “for­tu­nate” that it hap­pened, as it forced it to im­prove its safety and sound­ness. While the in­ves­ti­ga­tion is still not com­plete, the bank was aware of what had hap­pened and has im­proved sys­tems to make sure it is im­pos­si­ble for the same thing to hap­pen again. It has since in­vested sig­nif­i­cantly in peo­ple, soft­ware and sys­tems to pre­vent cy­ber­crime.

Tsha­bal­ala said the group has shown re­silience and steady progress un­der chal­leng­ing cir­cum­stances.

African busi­nesses con­tinue to flour­ish but the busi­ness en­vi­ron­ment in many coun­tries re­mains chal­leng­ing.

He be­lieves the South African econ­omy will re­main slug­gish, but ex­pects a moder­ate re­cov­ery in the medium term.

“We ex­pect rev­enues to be some­what stronger in the sec­ond half,” he said, adding that the in­vest­ment bank­ing pipe­line is en­cour­ag­ing and that he ex­pects faster loan growth.

“There is no doubt com­pet­i­tive pres­sures will con­tinue to in­crease, how­ever, we will fiercely pro­tect our ex­ist­ing cus­tomer fran­chise and grow by part­ner­ing with third par­ties to build new, in­no­va­tive of­fer­ings and rev­enue streams.”

(Ex­change rate: USD$1=ZAR13.3)

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