Good afternoon, and thank you for joining the Standard Bank Group pre-close call this afternoon. My name is Sarah Rivett-Carnac, and I will be managing the call. As you are aware, we issued a voluntary trading update, trading statement on SENS this morning. The purpose of this call is to cover the highlights of that announcement, and then we will open up the line for questions. On the call today, we have Arno Daehnke, the Group Financial Director, Standard Bank Group. Brooks Mparutsa, Barbara Bell, Lihle Ngema, the client segment CFOs, and Willa van den Berg , the Liberty CFO, as well as Sayuri Govender, Head of Group Reporting. I will now hand over to Arno to make some opening remarks. Thank you. Arno, over to you.
Thank you, Sarah, and good afternoon, everyone. It is great to talk again to you, give an update on our numbers. I will start with some brief comments on the macroeconomic environment and particularly how things have evolved since we released our results in March. I will then turn to the trends we are seeing in our business. Since reporting in March 2022, the global macroeconomic outlook has deteriorated, driven by, among other things, the ongoing conflict in the Ukraine, the strict lockdowns in China, and persistent global supply chain disruptions. As a result, global growth has slowed, inflation has trended upwards, and uncertainty has increased. In sub-Saharan Africa, higher food, fertilizer, and food prices have started to filter through, also driving inflation upwards. Higher inflation has in turn prompted monetary tightening, and this is faster than previously expected.
In South Africa, inflation reached 5.9% in April 2022. By 31st of May 2022, the Monetary Policy Committee had raised the repo rate by 3x and by a combined 100 basis points. The repo rate started the year at 3.75% and has now increased to 4.75%. Furthermore, the SARB indicated that there are likely to be further increases in the second half of the year. In March 2022, Standard Bank Research expected interest rates in South Africa to increase by 4x 25 basis points over the year. With 100 basis point increases already achieved, this has been revised up to 175 basis points for the full year. Turning to our performance and trends for the five months to the end of May. Let's start with revenue. In the period, the group recorded low double-digit revenue growth.
A larger average balance sheet and higher interest rates drove low-teen net interest income growth. A growing client franchise and higher client activity drove higher transactional turnover and supported mid-single digit growth in banking fees. I remind you that the COVID-related restrictions were much more restrictive in the five months to May 2021 than those in the five months to May 2022. In terms of client franchise growth, we continue to attract new clients. Our active client base in both Consumer and High Net Worth and Business and Commercial Clients has grown year-on-year. In recent months, we have onboarded between 70,000 and 80,000 new Consumer and High Net Worth clients a month in South Africa. We are also focused on entrenching our customers to improve retention and improve revenue generated per client.
I will come back to the customer account issues reported in the media in recent weeks at the end. Higher insurance premiums, particularly from our Flexible Funeral Plan base and lower pandemic-related claims were partially offset by higher short-term insurance claims. The latter was driven by inclement weather and floods in KwaZulu-Natal, South Africa. Trading revenue growth period-on-period was strong and ahead of expectations. Continuous client activity delivered mid-teen growth trading revenue. Moving to costs. Costs grew high single digits, driven by a combination of higher staff costs, normalization of certain post-pandemic spend, and inflation more generally. In the five months of 2022, weighted average inflation across our country's operation was close to 10%. Revenue growth exceeded cost growth, thereby delivering positive results.
With regards to credit, a decline in the Consumer and High Net Worth and the Business and Commercial client segments, credit impairment charges period on period was partially offset by the normalization of corporate and investment banking charges from a net recovery in the prior period to a net charge in the current period. Credit impairment charges in the five months to yesterday were marginally lower than the five months of the comparative period. Credit loss ratio for the current period was at the lower end of the group's through the cycle target range of 70-100 basis points. It is important to note that as we enter a rising interest rate cycle, the group's balance sheet provision levels remain well above historic levels. Turning to Liberty. Liberty's operational earnings improved period on period.
This was driven mainly by lower funeral and death claims in SA Retail and Liberty Corporate, and improved persistency in South Africa Retail. Sales on both SA Retail and Liberty Corporate increased relative to the prior period. While the pandemic impact was broadly in line with expectations and significantly lower than in the prior period, risk claims remained elevated. The future pandemic-related experience remains uncertain, and the pandemic reserve will be reassessed as part of the 1H 2022 reporting process. STANLIB and the shareholder investment portfolio were negatively impacted by adverse market movements. Liberty remains well capitalized. I remind you that we completed the buyout of the Liberty minorities in the first quarter of the year. Liberty's earnings were 100% consolidated from 1st of February , 2022.
Pre- treasury share adjustment, Liberty's contribution to the group for the five months of 2022 was positive. The higher Standard Bank share price resulted in a negative adjustment in the period, however. The Liberty integration plan is on track. The focus is on unlocking value and delivering ZAR 600 million synergy identified as part of the transaction. Turning to ICBC Standard Bank Plc. I remind you that this entity received an insurance recovery in January this year. Our 40% share thereof equated to ZAR 1.2 billion post-tax. Pleasingly, ICBC Standard Bank Plc recorded an operating profit in the period excluding the insurance recovery. Regarding capital and returns, the group remains well capitalized, and we are pleased to report an ongoing recovery in return on equity.
We reported a Common Equity Tier 1 ratio of 13.5% as at 31st of March 2022, and our group ROE for the five-month period was close to group cost of equity. For reference, our 2021 cost of equity was 14.7%. Now turning to the outlook and our guidance for the 12 months to 31st of December 2022. While the economic outlook has deteriorated and uncertainty increased, opportunities continue to exist to help our clients and in turn grow our businesses. Our guidance remains largely unchanged. A higher average balance sheet and positive endowment from higher interest rates should drive strong growth in net interest income. A larger client base and higher client activity is expected to continue to support fee growth. Trading revenues are subject to market volatility and related client activity.
While the group's credit loss ratio is expected to remain at the lower end of the group's through-the-cycle target range, balance sheet provisioning and associated credit charges are subject to macroeconomic developments, including the frequency and quantum of further interest rate increases across our country's operation throughout the rest of the year. We remain committed to delivering cost growth below inflation, positive jaws, and a return on equity above cost of equity in 2022. We also remain convinced that our strategy we laid out in August 2021 remains valid, and that the 2025 targets we set at the time are achievable. Finally, as noted in the announcement this morning, we expect group headline earnings to be up more than 20% in 1H 2022 versus 1H 2021.
We will be providing a more specific guidance range once there is reasonable certainty regarding the extent of the increase in earnings. We will report the group's 1H 2022 results on the 19th of August 2022. Before opening for questions, I would like to make some remarks around the customer account issues reported in the media and the IT outages which we have experienced. First, turning to the customer account issues. Based on our investigation to date, we'd like to make the following statement. We have not found this behavior to be widespread. The number of accounts impacted is small in the context of Consumer and High Net Worth South Africa's total base of 10.2 million active clients.
The clients' accounts impacted were valid accounts for real people and were appropriately KYC'd as part of the onboarding process. The issue which arose was that certain staff funded the new client accounts with small amounts of money to activate the accounts. Of accounts which have been identified as activated in this way, approximately 40% thereof have since been used by customers, i.e., actually valid active clients. In terms of the number of staff potentially involved, 51 people have been suspended. The disciplinary process is still underway, and by the end of last week, 33 people had been dismissed. Of course, we view this behavior in a very serious light, and this is not in line with our values and our culture. Any fraudulent activity is unacceptable and will not be condoned. We are purposeful in designing our sales processes and incentives to drive the right behavior.
For example, incentives are a small part of staff packages. In light of what has happened, we have also kicked off a broader review of our sales processes and incentives. Lastly, on this matter, the investigation is being conducted by group risk. Once completed, we intend having the investigation and the findings independently reviewed. On the IT outages, of course, we take this matter very seriously and have done a thorough investigation. We have identified what went wrong and are taking steps to improve our processes. The always on, always secure agenda remains a group-wide and very important focus for us. Every day, our engineering colleagues make decisions. They do so professionally and with the best of intentions.
Our IT architecture is complex, however, as outlined in our strategy update last year, and we are on a journey to simplify it and improve our resilience, including by moving to the cloud. Of course, we cannot guarantee we will never have another outage. However, we are focused on trying to limit the impact on our customers as much as possible and reducing the extent of the outage, and importantly, reducing the time to repair. Lastly, and importantly, our core systems of record, being SAP and Finacle, and where we invested significant capital, remain robust and effective. Thank you. That is the end of my update. Sarah, I'm handing back to you and we are opening for questions now.
Thank you, Arno. I trust that Arno has sufficiently covered the customer accounts and IT outages. We will now turn to questions. Judith, any questions? Thank you.
Thank you. Ladies and gentlemen, we will now be conducting the question and answer session. If you would like to ask a question, please press star then one on your telephone keypad or the keypad on your screen. A confirmation tone will indicate that you're in the question queue. You may press star then two to exit the question queue. The first question comes from Charles Russell of SBG Securities.
Thanks, and good afternoon, Arno, Sarah, and the team. A couple of questions, if I may, briefly. Can you perhaps give some color on the impact of high commodity prices on your Africa regions portfolio, and perhaps a comment on how the portfolio is doing relative to last year? Second question, to what extent do you expect interest rate movements across your Africa regions portfolio to mirror the rate hikes in South Africa? Third question, what impact do you expect the recent system stability issues to have on cost trajectory going forward? Thank you.
Great. Thanks very much, Charles, and great to hear from you again. On the impact of commodity prices, I'm gonna ask Brooks to talk about that. Brooks, over to you, and then I'll take the last two items.
Thanks, Arno. Thank you, Charles. On the high commodity pricing, I think what we have seen across our portfolio is actually an uptick in maybe our Global Markets Business has benefited favorably in terms of the high commodity prices, in terms of opportunity to hedge, particularly in the mining and metals sector, some of those high commodity prices and as well as the FX activity that's coming out of the mining and metal sector of the high commodity prices. We've seen the ability to take advantage of that. On the back of that, I think we have seen in particular markets the benefits of sort of the high oil price and other commodity sectors.
I think, particularly as we bank more the first-tier oil and gas companies, we have seen increased activity in oil and gas in that sector. What that also means, Charles, is it reduces the risk that we face in that sector. We are seeing both in mining and metals as well as oil and gas good tailwinds insofar as the high commodity prices. Back to you, Arno.
Yeah. Thanks. Thanks, Brooks. That's great. On your remaining two questions, Charles, interest rates in Africa regions, yes, we are seeing monetary policy tightening in many of our markets at different paces and at different grades. In many of our markets, they are at a much greater extent even than in South Africa. Overall, obviously, we're managing our credits, forward-looking outlook carefully in light of these expected increases, as well as benefiting from the endowment. On the impact of costs of IT outages, we do not see a material increase in costs.
However, we are thinking about reprioritizing some of our investments into the, you know, fixing the basics in terms of the resilience of our systems and making sure that we are appropriately invested in technology as well as in people and skills, that we can mitigate further risks of such IT outages. Overall at a group level, not a material increase in costs that you would be noting. Charles, I trust that answers your questions. Thank you.
Thank you very much. Clear. Thank you.
Thank you. The next question comes from Waleed Mohsin of Goldman Sachs.
Yes, thank you much. Good evening. Couple of questions from my side. Firstly, in the you know, trading update, you allude to a greater volume of clients or greater number of clients. I don't know, Arno, if you could share some quantitative numbers around it or perhaps provide some qualitative comments. Where exactly are you making these client acquisitions? Perhaps comment on segment within you know, details, if you talk about where these client acquisitions are coming from, and perhaps a quantitative number around the growth, if you can. Then second question on credit quality. You obviously allude to a stronger provisioning buffer. But if you were to think about a higher rate backdrop and you know, your house, you have changed, you've increased the rate expectations.
Which particular pockets of credit are you seeing, you know, any early signs of stress, if any, or where do you expect those to emerge as we move towards, you know, a further increase in rates at the end of the year? Thank you.
Great. Yeah. Okay. Hi, Waleed, and thanks for those two questions. I'll take the last one on credit, but the first one on where clients are coming from, Lihle, maybe just on the consumer side, if you can elaborate on that. Thank you. Over to you.
Thanks. Thanks, Arno, and thanks for the question. What we're seeing from a consumer perspective is a combination. Number one, we leverage off the mortgage book quite a lot. We switched quite a lot of clients there. You know, when clients come in for mortgage, we do really drive the cross-sell of transactional there. We've seen a good growth there. I think we've also done some great solutions over the last two years. What we've seen is clients really love the funeral, the Flexible Funeral Plan, and that's obviously given us new clients. The other piece is really around the Instant Money, you know, voucher and that mobile platform. What we've done in the last couple of years is really extend our reach from a client perspective.
We signed up, you know, various retailers for our clients to be able to send these vouchers as well as redeem. A combination of all of those solutions is really at the heart of the growth. There's been quite a lot of work and investment into just the coverage team and really a focus around really getting that sales engine going in the last couple of years. All of that is really what's driven the growth you see from a client base perspective. Thanks, Arno.
Yeah. Thanks, Lihle. Waleed, on the credit side, we've seen lower credit charges both in the Consumer and High Net Worth as well as the BCC segment year to date. So continued portfolio health there. You may remember we had some pressure on our credit card portfolio last year. That's also abated, so that pressure is now normalized. However, we quite cognizant that the most recent rate hike was 50 basis points, and we might get more 50 basis point rate hikes. That may put slightly higher pressure on our credit charges going forward, possibly in some secured as well as unsecured portfolios. So that's why we are guiding the credit loss ratio in the lower half of our 70-100 basis point range. Year to date, however, we've seen quite strong performance there.
Of course, Waleed, you would know that in CIB, we had a net charge in the first five months, whereas we had a net writeback in last year. We did mention that previously that is not sustainable. The CIB, converting to a more normalized net charge type position for this year. We certainly expect that to be the case going forward.
All right. Thank you much. Thank you. Thank you.
Thank you. The next question comes from Londiwe Buthelezi of Fin24.
Good afternoon, everyone. Thank you for taking my question, Arno. Just a follow-up really on what you see, you've seen so far with the early signs showing that you still have quite a healthy credit portfolio. But now that you've got this revision of 175 basis points, will you be, you know, tightening your lending criteria on CIB lending, just on fear that, you know, more customers may not be able to afford their repayments going forward?
Yeah, maybe I'll make an overarching comment, and then my colleagues can jump in on the call. I mean, the overarching comment, you need to recognize that when we think about our risk appetite and then the provisioning under IFRS 9 credit risk accounting rules, we take a forward-looking view into account. We had planned a 100 basis point rate hiking cycle. Obviously, as we write new business now, we will build, anticipate a slightly higher rate of 175 basis points. You would know the economic data points in South Africa, for example, just looking at SA markets. The consumers are relatively low leveraged, and hence some of the affordability criteria which we have evaluated remain intact, and hence our risk appetite is not materially had to tighten on the back of that.
Maybe I can ask, Lihle or Barbara, or Brooks if you wanna be more specific in your specific portfolios. Maybe starting with you, Lihle, and then Barbara.
Thanks, Arno. I think you've covered it. I think also, you know, coming into the crisis, I mean, if you look at our coverages now versus 2019, it's far more elevated than where we used to be. That's number one. I think the second piece is, you know, through the crisis as well, we're very cautious in terms of our affordability criteria because we knew that this time would come. As an example, in some of our portfolios, we had buffers, you know, built in already in expectations of rates to increase. That's really where some of the just proactive measures put in from an appetite perspective. Yeah, that's probably what I would add, Arno, to your comment.
Yeah, those are very good points. Thank you, Lihle . Barbara, in the business side, what are you seeing?
Arno, yeah. Nothing really extra to add. I think one of the points I was gonna make, Lihle already picked up. It's very similar in the B2C environment to CHNW. Obviously, we are very sector conscious, so we do take into account our industry appetite based on the sector, and the risks that we see potentially there, which are not necessarily interest rate related, but rather other input costs related. For example, the increasing inflation environment, the cost of fuel, that sort of thing, where we might be multitasking. Generally, we always base it on the business, the business' affordability and our outlook and expectation of that business in the months ahead. No, no significant handbrake pulling, just rather remaining cautious.
Yeah. Thanks, Barbara. Brooks, we know CIB is more name specific. Anything you wanna add?
No. Arno, I think that client-specific lending is really what CIB is about, so nothing to add.
Yeah, okay. Agreed. Yeah.
Thanks so much.
Is that clear? Yeah.
Londiwe, does that conclude your questions?
Yes. Thank you so much.
Thank you. The next question comes from Kevin Harding of Investec.
Hi, Arno and team. Thanks so much for taking the time. Just two questions from me. The first one, I guess just to understand your guide to the credit loss ratio being at the lower end of your through the cycle target range, close to around 70 basis points odd. Is this taking into account your expectations of an interest rate tightening cycle that may happen faster than expected, or will those calibrations still need to come in at the half year? The second question is really just around, you know, currency pressures that you're seeing across rest of Africa, whether that's a meaningful risk for you considering the current dynamics that we face. Thanks.
Yeah. Thanks, Kevin. The guidance we are giving in terms of credit loss ratio is in the lower half of the 70-100 basis point range. That takes into the forward-looking monetary policy tightening expectations, including the additional 75 basis points in South Africa. That's the guidance we're giving there. I also remind you, Kevin, that we do still have a central credit overlay of ZAR 500 million, which we are likely to release this year. There's an additional buffer which we have in that measure. As I said, we are likely to release it during the course of 2022. On FX pressures, that takes many forms. Certain of the markets do have FX constraints. Nigeria, for example.
There are some FX constraints as well as in the DRC to some extent, in Mozambique, even Angola. They take the form of many components. First of all, obviously we try and support our clients as they need to access FX. There we are typically in a good position to help our clients as they need to access FX and deal their business. That's part of our business model and gives us opportunity, commercial opportunity, to engage with our clients on the back of that. Of course, what you also may be referring to, you know, as we extract dividends from the countries, some of the FX constraints may impede that. One country where we had some constraints around that and are working with our local teams as well as the regulator is Namibia. Sorry, wrong country. Apologies.
It's Nigeria. We have dividends outstanding from Nigeria, and as I said, we are putting in place action plans on how to extract those dividends from Nigeria specifically because of FX pressures. Yeah. I hope I answered specifically the points you wanted to refer to, Kevin, if you're happy with those answers.
Thanks, Arno. That's great to hear. Thank you so much.
Very good.
Thank you. The next question comes from Asanda Notshe of Mazi Asset Management.
Hi. Good evening, everyone. Thanks for the call. Two questions, please. Firstly, just maybe following up on the credit loss side. To the extent that, you know, be it the pressures we're seeing at the moment on the consumer and, you know, commodity prices and all the rest, just to the extent that that maybe results in a worsening, credit environment, would we, could we expect to see, as you said, about the provisionings and the coverage being obviously elevated, could we see those levels maybe coming towards the historical levels with the charge perhaps remaining at that lower half or even at the half point of the credit cycle?
Just trying to get a sense of, you know, how you react perhaps to a worsening credit cycle versus expectations. Secondly, from a strategy perspective, as far as the strategy that you embarked upon and that you presented last year, I think second half, third quarter thereabout, maybe just progress on that. Are there any elements that we can point to in this update which can maybe or indicate, indicative of what you're doing there? Thank you.
Yeah, thanks very much. I mean, again, on the credit aspects, we manage our credit on a forward-looking basis and provide as well on a forward-looking basis. I think we made the comment that we are well provided and well covered. We, at this stage, are confident that we'll be in the lower half of our 70-100 basis point range, including some of the worsening macros we've seen coming through. You know, I know there seems to be a lot of questions on credit here. We currently are not seeing a blowout on a forward-looking basis in terms of a credit charge above what we've announced to the market up to now. We were always expecting a rate tightening cycle.
Again, Lihle made the point of being well provided, and I spoke about the central overlay as well. I think that gives you some comfort around the provision levels we have and how to manage the cycle going forward. Plus, I think also importantly to note that we are not chasing market shares in any of our secured or unsecured lending portfolios. I know the BA900 data came out, the BA900 data came out today, I think it was. An analysis is there for you to have a look at. We are writing the right business at the right risk levels with our clients being able to afford the repayments in a monetary policy tightening cycle, and we are not chasing market shares or writing businesses which we shouldn't be writing at this point in time.
Strategy update, yeah, we're making very good progress on the strategy update. Just a few data points on that. When we gave our market update in August last year, so that was the investor update on the 21st of August last year. We spoke about the opportunities we are seeing in a few of the growth vectors, and we unpacked those a bit more. For example, the one growth vector which we are actively pursuing is the Business and Commercial Clients sector. Hence we did carve out ours separately from PBB previously. We see strong growth in that particular sector with very strong jaws, a good revenue growth, well-managed costs at high ROE levels, and also particularly benefiting from the endowment unwind or the endowment tailwinds. We look forward to reporting strong results from that specific segment.
We are making significant progress in terms of client satisfaction, client acquisition, in terms of active client acquisition in the consumer space. I think I already mentioned, or Lihle mentioned the number of clients we continue to acquire and also the entrenchment of these clients. Selling more relevant products to them, and the funeral, actually, funeral product was an example of that going forward. In terms of our strategy update, we also spoke about focusing more on insurance and investment space. Again, the Liberty transaction concluded earlier this year is a key underpin of that. I did mention within the call the progress we are making on the Liberty integration and the business plan realization. I mentioned on the call the ZAR 600 million synergies.
You know, I really expect us to deliver that and more, you know, in the not too distant future. That business plan is absolutely intact and absolutely realizable. There's many levers we are currently pulling, which we will be talking more about when we release our results on the 19th of August. To give you some evidence points on the value extraction there. Of course, with Liberty also, there's opportunity to be more capital efficient through various capital restructuring activities. Then that allows us also to enhance our ROE. In terms of some of our more innovative work, we made significant progress in partnerships and continue to develop those. Currently, we have many participants in the South African economies who wanna partner with us. We are carefully filtering who our partners are gonna be going forward.
I don't wanna go into detail on that now because some of this is also market sensitive. We do hope to have some announcements about the partnerships we are developing going forward. Of course, one of them we've already dealt with is the Pick n Pay partnership, which has proven to be very successful. In terms of growing our beyond revenues, that is also on track. You will remember at the update, we spoke about ZAR 3 billion-ZAR 4 billion of non-financial revenues by 2025. Having recently looked at the progress on that, we continue to remain on track to deliver that. We're also looking at other opportunities throughout the African continent in other markets. As you know, we are pursuing high growth markets, specifically outside of South Africa as well.
We've previously looked at WAMU region, we've looked at Ethiopia, we've even looked at North Africa. To date, not the right opportunity has been identified for us. There's still more work we're doing to think about how and when we're gonna be accessing those markets and the right opportunity. Most of the growth in African regions, which is strong at the moment, there's good momentum behind our business in African regions. Most of that growth is organically based. We're quite comfortable to continue to that and then wait for the right opportunity. Overall, I made the point early on, you know, we remain on track for our 2025 ambition. I would say our future-ready transformation is progressing well.
Of course, there's always areas of improvement, and we continue to fine-tune the model and make sure that we are operating as effectively as possible. Then, of course, very importantly, and I make a point on the IT outages, you know, very, very important that we maintain the brilliant basics and fix them where they are not so brilliant. The outage on that Saturday, three weeks ago now, that was disappointing for us. We are addressing that actively. We've had a change of leadership there as well, which you would have noticed in the markets. You know, we need to fix those basics to give us a license really to invest for the future. That careful balance is being maintained, protecting our current franchise whilst investing for the future. I'll pause there.
There's quite a few things there you may want to drill into specific other matters as well, but at least.
Okay. No, thanks, Arno. No, I think, I'm covered. Thank you very much.
Okay, cool. Thank you.
Thank you. Ladies and gentlemen, just a reminder, if you'd like to ask a question, you're welcome to press star and then one. The next question comes from Chris Steward of Ninety One.
Good afternoon, Arno. Thank you very much for the time. I've got two questions. I'll just go one at a time maybe. I'd just like to clarify your comments around the group's commitment to deliver return on equity above cost of equity in 2022. You've talked to your performance versus the FY 2021 cost of equity, which the group estimates is 14.7%. I guess looking at where the risk-free rate has been in the first five months of this year, vis-a-vis last year, it's probably only about 20-30 basis points above that. Your cost of equity is not materially higher, spot is 10.8% on the SA ten-year is gonna be quite a bit higher than that.
Still, are you committing to deliver or to try to deliver a return on equity over and above the 2022 cost of equity, or are you using 14.7% just as a reference point?
Yeah. Thanks, Chris, and good to see you again. At the moment, we are referencing 14.7%. We have yet to calibrate a half year new cost of equity. I think for the purpose of this call, let's reference it to the 14.7% cost of equity.
Just one other slightly nuanced point. You talked to the accounting anomaly with regard to Standard Bank shares held in Liberty policyholders' funds as essentially eliminating the earnings contribution from Liberty for the period. As a result of that, Liberty's contribution, I think in aggregate being marginally negative is what you've talked to. The Standard Bank share price last year went from ZAR 127-ZAR 140, approximately beginning to end of year. That had a ZAR 355 million negative impact. The movement December to end of May was ZAR 140-ZAR 179 odd almost exactly 3x .
Now, I know there's lots of moving parts here, and this is fairly simplistic, but if one takes something of the order of magnitude of 3x the -ZAR 355 impact of last year, it seems insufficient to materially, well, to completely eliminate the earnings contribution from Liberty, in the absence of some other factors. Can I clarify there's no further COVID-related provisionings, extraordinary provisionings, if you like, taken at Liberty over the period or anything else that would've caused Liberty's operational earnings to be a little bit disappointed?
Yeah. Okay. Great. Maybe I can ask Willa to just give a short update on the operational performance and also the impact from the shared investment portfolio. Willa, over to you.
Thank you, Arno, and hello, Chris, and good afternoon to everyone. I can confirm we have not reset our pandemic provision. As the announcement has stated, so far, the risk and funeral claims are tracking in line with expectation when we set up our reserves. At the start of this year, we will obviously reassess that at the half year on a forward-looking basis. I would remind everyone that there is still some uncertainties regarding what might happen with the pandemic on a forward-looking basis. In terms of the operational earnings from the Liberty side, we are seeing an improvement off last year, mainly driven by the improved consistency and risk claims through our SA Retail as well as Liberty Corporate businesses, and where Sanlam and the shared investment portfolio have seen muted performance given the muted markets that are out there.
Arno, if I may, I do think the question around the treasury adjustment, we should probably just give some guidance around that as well.
Yeah. I don't know if we need to add much more there. Obviously we'll give the exact impact of that as we report in August, where our share price is now at ZAR 159. I think it's close to the, you know, the impact is less material as it's a five-month end of May type position.
Yeah.
But, um.
No, I don't need, I certainly don't need any more insights on that. Yeah, I'm happy. No need to go any further in that regard, and thank you very much for the answers.
Okay. Sure. Thanks, Chris. Over to the next question.
Thank you. I'm not sure if you can hear me for a moment. Apologies for that.
We can hear you now. Yeah.
Thank you. The next question comes from James Starke of RMB Morgan Stanley.
Hi, Arno and team. Thanks for the opportunity and update. Just on the trading income, I mean, perhaps if Brooks can expand a bit further, just, you know, give some color around, you know, the product lines, fixed income, FX, equity, et cetera, and also geographically, and perhaps how you see the current momentum assisting into the rest of the year. The second question is on ICBC Standard. If you can give us some color, more color on operational performance, and how that compares to the prior period, obviously excluding the insurance recovery. Then lastly, just from a tax rate perspective, I mean, are we still trending in sort of similar sort of levels to what we saw last year? Thank you.
Great. Yeah. On the trading performance, let's just ask Brooks to reflect on that.
Thanks, James. I think in terms of trading, it's important that we look at it from our Global Markets Business in three distinct buckets. The first bucket being client revenue, where we have seen significant great performance in terms of the client revenue. And some of that is off, you know, will be of a trading nature. We're supporting our clients. Then the next bucket is the liquidity management. And that has performed like for like, pretty much in line with the previous financial year. In terms of the, if I can call it the prop type trading, which is trading revenue. What we've actually seen over the last five months is a reduction in that trading revenue.
We're seeing greater client revenue and reduced prop trading revenue. Overall, at a Global Markets Business, we are seeing, you know, certainly very good growth out on a total Global Markets Business. The prop trading is down year-on-year, and we are supporting our clients better going into, certainly in the last five months, and we've seen phenomenal growth in that. If I look at our Global Markets performance, certainly way ahead of where we expected it to be in March or when we sort of did our plans at the beginning of the year. Overall Global Markets are quite strong.
Okay. Thanks, Brooks.
Okay.
James, are you happy with it or anything else you wanna?
Yes.
Add trading side?
No, thank you.
Thanks . Okay. Hang on. James, let me remind you the business has got four desks, okay? Four main type of business lines: metals, energy, emerging markets trading, and structured solutions and capital markets. Particularly strong performance, a year-on-year increase actually in the energy desk and emerging markets trading desk. Just to let you know on that. On metals and structured solutions, capital markets likely down on the prior reporting period. That's a slight downdraft. Operationally, really it's energy and emerging markets trading type businesses. That's obviously stripping out the insurance benefit. Generally the business has had good operational performance. Obviously in pockets there is some pressure on some of these desks. We did have exposures in the nickel markets.
We also had exposures in some of counterparts operating in the Russian and Ukrainian space. Although we still run higher risk than normal on those exposures and those type of counterparts, the risk exposures have materially been reduced, and we remain comfortable that a tail risk event coming out of that is probably mitigated. Lastly, as we've indicated previously, we continue to work with our partners in Beijing, ICBC on the integration of this entity into the broader ICBC franchise. I think that just gives you a snapshot on ICBC at this stage, five months into the year, not a surprise or outcome which we hadn't expected at this point in time.
Thank you. Tax rate?
The other question on tax. Yeah, just go, run that through me again, please.
Just really the effective tax rate. I mean, are we trending at the sort of similar levels to what we saw last year?
No. Similar to what we've had in a more normalized year, like 2019, right? Which was starting to normalize last year. Yeah, tax is normalizing. Below 20.
Thank you.
Percentile effective tax rate .
Below 20% or low 2%0s? Sorry. Just clarify that.
Low 20%, not below 20%.
Thank you.
Low to mid 20% effective tax rate, yeah.
Excellent. Thank you very much.
Okay. Thanks, James.
The next question comes from Radebe Sipamla of Mergence Investment Managers.
Afternoon everyone. Just if I could ask, on margins and loan growth, well, what trends are you seeing in your net interest margins? Can we expect them to sort of normalize to about 2020 levels or there's still a bit of softness there? Could you unpack the trends you're seeing in your loan growth in terms of the different divisions and geographies as well?
Yeah. Thanks, Radebe. Sayuri, if I can ask you to address those two.
Thanks, Arno. From a margins perspective, we are seeing the endowment benefits coming through, which we were anticipating. You can see it's affecting us positively. That trend will continue to be quite firm as we go through the second half of the year, and we expect to see the additional rates coming through. There is some margin pressure that is impacting us from a pricing perspective. The competition in the market we've mentioned previously in the home services space, for example, and in our IB spaces, are affecting our pricing ability, and that will affect the margin negatively and have an adverse impact. On the whole, the endowment benefit will definitely come through quite strongly.
In terms of the loan growth position, and the various CFOs can comment on their positions as well, but what we are seeing is strong loan growth in our Africa regions portfolio, and that comes through with higher margins. We continue to see the Africa region margin versus the SA margin benefits in terms of mix.
We are seeing very strong balance sheet growth continue. Continued balance sheet growth in our secured portfolios as well as on the unsecured.
Okay, thanks. Just if I could just ask lastly, just to go back to trading revenue. In the first half of last year, it was quite a soft number and there was a bit of a recovery in the second half. This mid-teen growth, is it just a bounce back or is it a proper. You're seeing decent flow, client flows or just a normalization?
Brooks, I think that's for you.
Yep. Yes. I think we are seeing greater volatility, certainly in the first five months. With that volatility, what we do see is on the back of that, our clients' you know, appetite for risk management increases. It's really more out of the client activity that we're seeing the uptick.
You think the momentum can be sustained into the second half, or you think there'll be a bit of a normalization in the second half?
Well, I think it's very difficult to predict, because a part of that really depends on what is happening globally. Certainly the first five months have been significantly better. In terms of our forecast, we see it slowing. I think for trading we'll still see a good outcome for the full year. I think inasmuch as we saw some volatility at the back end of last year, which underpinned the revenue growth, it really depends sort of what is happening in the markets and globally.
Thank you very much.
The next is a.
We're conscious of time. Judith, maybe if we could have one or two more questions, and then we might need to end the call. Thank you.
Thank you very much. Next is a follow-up question from Kevin Harding of Investec.
Hi. Just following up on Liberty. I mean, you talked to sales recovering in both the SA Retail and the corporate book. Perhaps could you comment on the margin dynamics within the retail book, particularly within the retail affluent sector. Is Liberty experiencing the same as the rest of the sector in terms of individuals trading down to lower margin savings products as opposed to sort of a comprehensive risk cover dynamic?
Willa ?
Yes, Kevin, we are in line with market and with the trends we're seeing elsewhere in terms of risk sales proportionately being less than the investment sales. I would remind everyone, though, that the margins last year on our VNB was already depressed, and would say that we are still in line with those margins.
Cool. Thank you.
Our final question comes from Simon Nellis of Citi.
Oh, hi. Thanks very much for the opportunity. My line was a bit choppy. I was hoping you could just outline again the essence of the fraud case that you mentioned. I'd be interested in knowing if you think this will lead to any regulatory fines, potentially have an impact on your operational risk calculations going forward. That would be my main question. And also just on the capital position, maybe, what's the sensitivity to the capital position and equity to a shock to bond yields? If you could summarize the impact thanks.
Okay. Thanks, Simon.
Arno.
Just.
Sorry. Maybe if I could ask you to deal with the capital question, capital levels, and then I'll take the question offline with Simon, on the customer account issues I think he was asking about.
Yeah. I wanted to clarify the fraud issues. That's a customer account issue, because we have been through that in fair amount of detail. Simon, maybe you can deal with Sarah.
Sure. That's fine.
On the capital question, you're talking specifically the sensitivity of capital adequacy or cost of capital? I mean, just to elaborate a little bit on that, what the sensitivity analysis.
I guess two things.
Okay.
If the rising bond yields are gonna have a will you see marks that will affect either equity or your capital position? How sensitive is equity and capital to rising bond yields?
From a capital adequacy point of view?
Yes.
Yeah, the group would not be sensitive to that. Obviously, there's indirect impact. Rising bond yields may be higher interest rate outlook, et cetera. There might be secondary impacts from that. Otherwise, there's not a direct impact from capital adequacy and bond yields.
Okay. Thank you.
Okay, great. Judith, thank you very much for managing the Q&A. Thanks to everybody for joining the call this afternoon. Hopefully, you found the call useful, and we look forward to speaking to you all in August.
Thank you. Ladies and gentlemen, that concludes today's event. Thank you for joining us. You may now disconnect your lines.