Interest rate pain and gain for Investec

Investec has seen profits in the first five months of its 2023/2024 financial year, which it partially linked to an increase in interest rates.

In a pre-close trading update for the interim period ending 30 September 2023 (H1 2024), the group said that adjusted operating profit grew from £405.0 million (R9.3 billion) in H1 2023 to between £428.7 (R9.9 billion) million and £449.6 million (R10.3 billion).

The group added that the Southern African business’ adjusted operating profit will increase by at least 5% from the R4.5 billion in H1 2023. Specialist Bank is also expected to be at least 12% higher than the R4 026 million in H1 2023.

“Revenue growth was supported by continued success in our client acquisition strategies, a higher interest rate environment and balance sheet growth; and partially offset by the effects of some of the strategic actions described above and the persistent macroeconomic uncertainty,” the group added.

“Net interest income benefitted from growth in average lending books and higher interest margin
given the higher interest rate environment.”

However, non-interest revenue from the group’s banking and wealth and investment businesses also increased due to improved client activity and diversity of income streams despite the challenging economic conditions in the group’s key markets.

“This was offset by the effects of the strategic execution on the current period’s earnings, comprising the cessation of equity accounting of Ninety One post distribution and The Bud Group Holdings following the restructure in 2022, and the deconsolidation of IPF after the disposal of the management companies,” it added.

However, despite the expected revenue growth from interest rates, the group is still expected to report a credit loss ratio closer to the upper end of the through-the-cycle (TTC) range of 25bps to 35bps.

South Africa is also expected to report a credit loss ratio around the lower end of its TTC range of 20bps to 30bps, boosted by recoveries from previously written-off exposures.

The UK, on the other hand, is expected to report a credit loss ratio at the upper end of its TTC range of 30bps to 40bps

“The expected credit loss experience to date reflects the higher interest rate and inflationary environment. We have seen idiosyncratic client stresses with no evidence of trend deterioration in the overall credit quality of our books,” the group said.

However, the group said that it remains well-capitalised with strong liquidity, with it also completing the combination of Investec Wealth & Investment UK with Rathbones yesterday, 21 September.

Overall, the group expects headline earnings to increase by 6.0% to 12.0% from 32.0p (R7.40) in H1 2023 to 33.8p (R7.81) to 35.8p (R8.28) in H1 2024.

The group’s expected financials can be found below:

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