Standard Bank’s Africa strategy 'paying off'

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Standard Bank Group Joint CEO Sim Tshabalala, says the group strongly believe that there are massive profit pools on the African continent and they are going to continue to grow. Standard Bank Group Joint CEO Sim Tshabalala, says the group strongly believe that there are massive profit pools on the African continent and they are going to continue to grow.

Standard Bank is making headway in its African-focused strategy, with continental operations, excluding South Africa, contributing 26% to group revenue for the year ended December.

The rest-of-Africa operations grew aggregate headline earnings 44%, from R2.4bn in 2012 to R3.5bn last year, in what CEO Sim Tshabalala called a "stellar performance". In 2010, the group’s operations on the rest of the continent contributed 17% to the total income of Africa’s largest lender.

Speaking at the release of the results in Sandton on Thursday, Mr Tshabalala said: "We are back to trend growth.… As the financial institution with a huge exposure to the global markets, we suffered painfully as a result of the global financial crisis."

Following the crisis, the group shifted its strategy from becoming a leading emerging markets bank to focus on growing its operations in Africa. It now has operations in 18 African countries and representative offices in Ethiopia and Côte d’Ivoire. "We strongly believe that there are massive profit pools on the continent and they are going to continue to grow," said Mr Tshabalala.

Joint CEO Ben Kruger said that although the rest-of-Africa operations were contributing to revenue, the portfolio was expected to become profitable only this year.

In January, Standard Bank announced it would sell its controlling stake in London-based global markets business Standard Bank plc to the Industrial and Commercial Bank of China — which owns 20% of the Standard Bank group — for about $765m.

The sale, still waiting for regulatory authorities’ approval, will release capital to be used to grow the African businesses.

An analyst note from Imara SP Reid said selling the UK business was a "neat solution to the problem" of the "expensive relic from the days of its emerging markets strategy".

The group’s rest-of-Africa operations improved return on equity (ROE) from 16.6% in 2012 to 19.7% last year. The portfolio manager for Old Mutual Investment Group’s Electus boutique, Siboniso Nxumalo, said the rest-of-Africa operations were "gaining traction" off a small base with "pleasing returns".

The disposal of the London business was particularly pleasing, said Mr Nxumalo. "Standard Bank has a lot of capital in London earning zero return for shareholders and it wants to deploy it in Africa where it is earning a 19.7% ROE. This is a large opportunity in Standard Bank and that excites us," he said.

ROE measures a firm’s profitability by showing how much profit it generated with the money shareholders have invested.

The bank’s personal and business banking division lifted headline earnings 14% to R8.4bn, contributing 49% to group headline earnings.

Corporate and investment banking, which accounts for 38% of group headline earnings, grew headline earnings 49%, though this was due to some exceptional costs in the past that had affected the previous year’s performance. Mr Kruger said on a normalised basis, earnings increased 33%, still an "excellent" performance.

Rest-of-Africa operations were now a significant contributor to the profits of corporate and investment banking, said Mr Kruger.



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