Standard Bank flags consumer pain – with a slight improvement

 ·27 Nov 2023

Standard Bank says the growth of its credit impairment charges has slowed amidst the challenging economic environment.

In a trading update for the ten months ended 31 October 2023, banking revenue growth slowed but was still 20% higher period on period. This was due to continued strong net interest income and non-interest revenue growth.

“While higher average interest rates continued to support net interest margin, net interest margin expansion has slowed in recent months given that the interest rate increases seen in 2H22 are now embedded in the base,” the group said.

“Lower demand, reduced affordability, and competitive pricing pressure (particularly in mortgages in South Africa) resulted in lower disbursements to retail and business clients and a slowdown in growth in the related loan portfolios.”

“Corporate origination remained strong, driven by energy-related opportunities. Non-interest revenue growth was low-to-mid teens period on period, supported by ongoing client acquisition, higher transaction volumes, annual price increases, and continued volatility, which supported trading revenues.”

The group added that its credit impairment charges growth slowed even if it is still elevated due to balance sheet growth, sovereign risk migrations in African regions, provisions for South African corporates and the strain on consumers amid rapid interest rate increases.

Sky-high credit impairments have been a regular feature in South African financial service providers amid the economic environment. For instance, Investec said that its expected credit loss (ECL) impairment charges rose from £29.4 million (R665 million) in 1H23 to £46.3 million (R1.05 billion) in 1H24.

However, Standard Bank’s credit loss ratio for 10M23 was below the top of the group’s through-the-cycle target range.

“Relative to levels as at 30 June 2023, balance sheet provisions remain high, and coverage remains strong. Both are deemed appropriate at this stage of the cycle,” the group said.

In addition, the group said that itsAfrica regions delivered strong earnings growth period on period on reported and constant currency, with the Africa Regions contributing 44% to the group’s overall headline earnings for 10M23.

The group said that it will release its financial results for FY23 on 14 March 2024.

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