Despite the significant headwinds experienced, Standard Bank Namibia Holdings managed to improve its financial performance in 2015 by growing profit after tax by 8.2 percent and loans and advances to customers by 6.0 percent. These figures are according to the bank’s 2016 interim financial results, which represent the second year of its three-year strategy.
The latest results also indicated that total income grew by 9.8 percent, with a healthy growth in interest income of 17.2 percent offset by a higher growth of 27.5 percent in interest expenses on account of a higher interest-rate environment given the heightened uncertainties in the local and global markets.
Expenses grew by 12.5 percent, largely attributable to the investments the bank has made in its staff. “We see continual progress in the quality of our loan book as evidenced by the decline in the credit loss ratio to 0.6 percent from 0.7 percent. Our return on equity saw a decline from 22.7 percent to 20.3 percent largely attributable to higher retained capital during the period due to a deferred dividend payment,” explained Bryan Mandy, Chief Financial Officer of Standard Bank.
“We have been adapting to the profound changes in the financial services industry and the expectations of our stakeholders – anticipating the changes and responding decisively and effectively. This is a measure of the bank’s ability to stay relevant in Namibia,” said Vetumbuavi Mungunda, Chief Executive of Standard Bank.
“The Standard Bank of today is substantially better equipped to innovate and to consider and embrace new and better ways of serving our customers. This is rooted in greater collaboration, accountability and effectiveness that can counter the complexity that so easily hampers large organisations. Our industry is changing faster than ever before and we must be able to respond effectively to this change to stay relevant to the economies and societies we serve. It is this, ultimately, that underpins sustainable profitability and value creation,” stated Mungunda.
Total income grew by 9.8 percent during the first half of 2016, with net interest income (NII) increasing by 9.4 percent primarily due to an increase of 6 percent in loans and advances to customers. The margin improved slightly by 10 basis points to 5 percent evidencing a satisfactory management of liquidity and pricing, despite the recent increases in funding costs. According to Mungunda, interest rates increased by 50 basis points during the first six months of this financial period, increasing the need to manage the delicate balance between funding and lending.
Non-interest revenue (NIR) grew by 10.4 percent, outperforming growth in the prior period of 7.1 percent. Growth was seen across various types of fees. Trading revenue decreased by 11.5 percent mainly due to currency trading volumes and margins declining. Other revenue increased by 4.7 percent.
Credit impairments were 2.5 percent lower than the prior period, with the credit loss ratio declining to 0.6 percent from 0.7 percent. Mungunda said the bank has implemented new recovery strategies that are proving to be effective.
Operating expenses increased by 12.5 percent over the prior period and the group’s cost to income ratio increased to 59.3 percent from 57.9 percent. Staff expenses increased by 15.8 percent and other operating expenses increased by 8.9 percent.
“Significant investments have been made in staff to ensure the necessary talent is attracted and retained to meet our strategic goals. Other operating expenses were affected by our increasing investments in innovation. At the same time, they were also negatively affected by the worsening exchange rate, leading to substantial increases on imported goods and services,” says Mandy.
Loans and advances
Loans and advances to customers grew by 6 percent compared to June 30, 2015. A 10 percent growth was achieved in vehicle and asset finance and an 8 percent growth was recorded in mortgage loans. At the same time, the card debtors contracted by 8 percent. Overdrafts, demand loans and term lending recorded a lower growth rate. The impairment provision decreased by 9 percent due to better management of the loan book.
Capital, funding and liquidity
Mandy reported that “SBN Holdings remains appropriately capitalised with tier 1 and total capital levels at 11.58 percent (FY15: 13.42 percent) and 14.9 percent (FY15: 15.6 percent), respectively. Mungunda stresses that SBN Holdings is in a good position to meet the progressively higher requirements arising from the Bank of Namibia’s intent to implement Basel III capital standards in the near future.
Deposits and current accounts from customers decreased by 3.2 percent with a substantial decline in call deposits contributing to this position at June 30, 2016. This arose as a result of large tax payments being made by some of the larger clients over the June 30 reporting date. This decline was offset by a significant (27.4 percent) growth in the bank’s cash management product offering to corporate clients. In May, Standard Bank Namibia issued N$700 million worth of bonds and NCDs to ensure that it would meet its long-term funding needs.
Standard Bank maintained its strong liquidity position within approved risk appetite and tolerance limits. Total liquidity in excess of specific prudential requirements amounted to N$2.0 billion as at 1H16 (1H15: N$2.2 billion) and remains adequate to meet all internal stress testing, prudential and regulatory requirements.
The internal Basel III liquidity coverage ratio (LCR) implemented in early 2015 was maintained above the minimum phase-in requirement of 70 percent. The bank is well-positioned to meet the increasing requirements in the coming years.
“In 2016, we were faced with some turbulent economic events, including the threat of a sovereign downgrade for South Africa and ‘Brexit’. The latter has left the global economy in a volatile position with the impact not yet being certain. Global growth prospects have decreased to 2.4 percent for 2016 with emerging markets expected to continue to face strong headwinds. The domestic economy is expected to grow by 4.4 percent in 2016, down from the 5.7 percent growth in 2015. Whilst the Namibian economy has remained strong during the turbulent global economic situation, the bank has noted an adverse impact of the ongoing drought. We continue to focus our efforts on transforming Standard Bank into an innovative and forward-thinking bank that is able to achieve sustainable results,” Mungunda concluded.