Sure. We are achieving this priority.
Our financial targets to 2025 obviously won't change until then. 2023 has strongly reinforced our momentum towards, and confidence in, achieving these targets. Turning to slide 6, and starting on the left with the global dynamics which emerged in 2023, the war in Ukraine ground on throughout the year, sustaining uncertainty. Further uncertainty has been created by the conflict in Gaza. However, these conflicts did not cause wider spillovers in 2023. More positively, in our view, tensions between the superpowers moderated. Global inflation eased in the second half in response to rapid increases in policy rates and to base effects. Turning next to sub-Saharan Africa, although much less discussed in the international media, serious conflict also continued in many parts of Africa.
These conflicts did not directly affect our business, but they did place pressure on the economies and societies of several countries where we work, including Nigeria, Ghana, Kenya, the DRC, and Mozambique. Inflation remained high, and most African central banks continued to raise the policy rate, particularly in the first half. While some African sovereigns experienced worsening financial pressure, fiscal positions improved in Ghana and Kenya. Indeed, it appears that several larger African governments are again accessing international capital markets. Although the liberalisation of the naira triggered inflation, Nigeria's broad suite of reforms should be positive for growth in the medium and longer term. The overall picture remained positive. Thanks to Africa's impressive resilience and dynamism, the region's economy grew at 3.3%. In South Africa, although inflation began to slow in the second half, interest rates remained high.
Growth continued to be severely constrained by electricity and logistics, but again, there were signs of notable progress in the final quarter of the year. Moving to the Standard Bank Group, 2023 was exceptionally good for our group. Arno will discuss our performance in detail. Before he does, I will briefly comment on the group's performance over the longer term. Despite the pandemic, group income rose by 40% over the five years since 2019, reaching ZAR 155 billion in 2023. Over the same five-year timeframe, our headline earnings grew 52% to reach ZAR 43 billion in 2023, and the group's return on equity in 2023 was 18.8%, up 200 basis points compared to 2019. We declared a total dividend of ZAR 14.23 a share.
This is a growth of 43% over the five years since 2019. We have retained a strong capital position throughout. The group's scale and momentum are unmatched in Africa, and I hand over to Arno to take you through the details of our financial performance.
Thank you, Sim, and good morning to everyone in the room and on the call. I'm now going to present section two, which covers the group's results in details. In these slides, you will note a strong 2023 performance underpinned by a robust and growing franchise and a diversified portfolio comprising of four business units in 26 countries. When I turn to 2024, I will share some short-term macro concerns which are likely to slow growth, but I will also illustrate that we remain on track to deliver our 2025 targets. In 2023, Standard Bank Group recorded headline earnings of ZAR 42.9 billion, and this is up 27% relative to the prior year, and we delivered a return on equity of 18.8%.
This performance was underpinned by excellent earnings growth from both our banking businesses, up 31%, and our insurance and asset management business, up 22%. Revenue growth was well ahead of cost growth, which supported strong operating leverage, and our cost-to-income ratio, as you can see here, reduced to 51.4%. Our Common Equity Tier 1 ratio remains strong at 13.7%. The slides that follow cover our banking business results. I will then cover insurance and asset management, followed by some reflections on the group's business unit and regional performance. Our banking business benefited from continued client franchise growth, larger balance sheets, and increased transaction volumes, as well as certain market and interest rate tailwinds. Revenue growth, at 21% higher, was well ahead of cost growth at 15% higher.... which then generated strong positive operating leverage of 5.7%.
Credit impairment charges across all our banking products, reflective of the difficult macroeconomic environment, and the credit loss ratio therefore increased to 98 basis points, and this is at the top end of our target ratio. In the 2023 results, we have amended our methodology for recognizing interest on Stage Three loans. This change resulted in an increase in net interest income and an equal and opposite increase in credit impairment charges, with no change to headline earnings. The 2022 results have also been restated for this change. In 2023, given the large Stage Three book and high levels of interest rates, this adjustment has added an additional ZAR 2 billion to credit impairments. Without this technical correction, the credit loss ratio of 98 basis points would have been 85 basis points, which is in line with previous guidance.
Banking headline earnings of ZAR 38.8 billion were 31% higher, and the ROE improved to 19.5%. A weakening of Africa Regions' exchange rates in the second half of the year, in particular the Naira, has resulted in reported ZAR earnings growth being dampened compared with the constant currency growth rates. Slide 14 looks at trends in loan growth over the last 3 years. In 2023, gross loans to customers grew by 6%. Our largest book of corporate and sovereign lending grew by a robust 16%, supported by renewable energy deals and higher demand for trade facilities. Lending for home services, however, grew by just 2% as client demand faded and disbursements were 31% lower in South Africa. Personal unsecured loan applications increased in South Africa, but approvals were lower, resulting in 2% book growth.
On the right-hand side, we show good loan growth in South Africa at 8% and Africa regions at 2%, dampened by constant currency movements, as you can see here. Deposit growth momentum has been good over the last three years, and in 2023, deposits grew by a further 6%. Current and savings balances growth slowed as clients increased spending and/or moved their funds to take advantage of more attractive interest rates. Therefore, term deposits grew by 12%. Once again, the impact of the weaker exchange rates dampened growth in rands, and Africa regions continued to show good deposit growth of 18% in constant currency terms. Net interest margin, shown in the graph on the left-hand side of slide 16, increased by 62 basis points, of which 55 basis points related to positive high endowment, given higher average interest rates.
For our portfolios of countries, we calculate that interest rates were on average almost 300 basis points higher in 2023 compared to 2022. This movement equates to a positive endowment impact of ZAR 10.8 billion in the period. Asset pricing negatively impacted margins during the period. Competitive pricing pressures in home services, vehicle and asset financing, and corporate lending were evident. Our margin mix continues to benefit from faster growth in Africa regions' local currency lending. This margin expansion, together with strong average balance sheet growth, supported net interest income growth of 25% to ZAR 97.5 billion. In South Africa, we started hedging endowment risk in 2022 and extended the program during 2023.
This has reduced our interest rate sensitivity to interest rates, and per 100 basis point rate cut, a ZAR 1.4 billion impact is expected, despite a growing endowment base. Prior to any hedging activity, the sensitivity would have been ZAR 2.1 billion for a 100 basis point change in interest rates. Fee and commission revenue grew by 10% and was driven by good momentum in our client franchises. In PPB, for example, active client numbers increased by 6% in South Africa and by 4% in Africa regions, and fees overall were up a pleasing 13%. Account transaction fees were up 8%, and increased card spend and travel supported healthy growth in card and foreign exchange related fees. Our customers' preference for digital channels continues to be evident in good growth in electronic banking fees.
Trading revenue grew by 20% to ZAR 20.5 billion. Fixed income and currencies recorded an excellent performance, driven by increased and widespread foreign exchange-related client activity. Within CIB trading revenue, client revenues grew by 11% to ZAR 14.4 billion. In the first six months of the year, market making made up 38% of CIB's trading revenues, and in the second half of 2023, it comprised a more normalized 20%. On slide 19, we turn to credit provisions and start by looking at our balance sheet provisions at year-end. Starting on the left-hand side of the slide, year-end lending balances grew by 7%, and Stage Three loans increased to 6% of the book.
In the graph shown in the center of the slide, you can see balance sheet provisions for credit of ZAR 64 billion, which grew by 15% faster than book growth. An increasing proportion of these balance sheet provisions relate to Stage 3 loans. We hold ZAR 46 billion in provision against Stage 3 loans of ZAR 100 billion, giving us a Stage 3 coverage ratio of 47%. This coverage ratio has dipped slightly, given a large cohort of Home Services loans rolling into Stage 3 pre-legal category, which require lower coverage ratios than loans that are in a legal stage. Pre-legal comprise 31% of Stage 3 loans, compared with 19% a year ago. Encouragingly, we have recently noted a slowdown of flows into Stage 3 in Home Services.
Our total coverage ratio at 3.8% remains high, and we are confident that we are well positioned to absorb any late cycle impacts from interest rates remaining higher for longer, as well as further sovereign vulnerabilities. On slide 20, we illustrate the build-up of provisions over the last two years to show the recent divergence between Stage 1 and 2 and Stage 3. Starting on the left, Stage 1 and 2 provisions seem to have peaked around June last year, and coverage has remained relatively stable over the period. Stage 3 provisions, however, which take longer to work through, are increasing across all products and risks remain evident, particularly in Home Services, Business Lending in Africa regions, and in specific names in CIB. Stage 3 coverage ratios, while lower than December 2022, have picked up since June.
The resultant credit impairment charge in the income statement increased by 22% to ZAR 16.3 billion. The increase in the charge was driven primarily by Home Services and Business Lending, where flows into non-performing loans increased. The ZAR 465 million increase in the center relates to a release in the prior period, which was not repeated in 2023, and the ZAR 700 million net release in financial investments relates to the partial reversal of a large provision relating to Ghana sovereign risk, offset against new provisions to accommodate increased sovereign risk in Malawi and Mozambique. The credit loss ratio of 98 basis points is elevated but remained within our target range.
I remind you that the change in methodology for accounting for stage 3—for interest on Stage 3 loans referred to earlier, elevated this ratio in 2022 and in 2023 by 8 and 13 basis points respectively. This longer time series is useful to reflect on our large stock of balance sheet provisions and growing coverage ratios. As we enter a more benign macro environment in the second half of 2024, this level of provisions should more than adequately absorb any further deterioration in the lending book and buffer provisions required from growth in the lending book. Turning now to expenses on slide 23. In 2023, 2023, we invested in our franchise and our client propositions. We hired over 1,000 people, increased our points of representation in South Africa, and launched several new products, including a solar loan, and expanded our digital offerings and functionality.
Operating expenses increased by 15% to ZAR 79.7 billion. While expense growth was high, revenue growth exceeded it by almost 6%. Staff costs grew by 17%, and this growth was made up of 12% fixed remuneration increase linked to overnight inflation increases and a larger staff complement. Variable remuneration was 35% higher, linked to performance and the comparatively lower incentives awarded in the years following 2020. Costs related to technology investments grew by 9%, and I will spend some time on this in the following slide. Other expenses increased by 16% due to higher business-related activity, including deposit insurance in Nigeria and Ghana, higher municipal costs within the premises line, and audit fees and higher legal fees. We've also had increased marketing expenditure in Africa regions.
Slide 24 then shows total IT spend, including IT staff costs, and illustrates our continued support for strategically important digital initiatives. Software, cloud, and technology-related costs, as shown in the dark blue bar at the bottom, is the biggest component and increased by 14% due to higher spend on cloud migration and software licenses, as well as personalization and other focused AI-driven projects. Our call centers and public-facing websites are now fully deployed and running on the cloud in South Africa, contributing to better response time and 100% uptime. The IT function's focus on resilience and stability is certainly bearing fruit, with excellent cyber fraud prevention and core system stability and availability throughout the year. Amortization declined by 4% as the group's large historic IT program started to roll off. I'm now turning to insurance and asset management.
Post the Liberty minority buyout in 2022, Liberty has been integrated into the group and is now included with other related businesses in Insurance and Asset Management or IAM business unit. The insurance operations' new business value increased by a pleasing 13% year-on-year to ZAR 3 billion, mainly due to an improved claims experience and increased sales. The main driver of new business value is the South African life business, particularly embedded insurance products. Assets under management in South Africa. South Africa's asset management business increased by 8% to ZAR 1 trillion. This growth was attributed to positive local and offshore investment market movements during the year. Insurance operating earnings grew by 23% to ZAR 3.9 billion, supported by the South African insurance business, which increased operating earnings by 27%.
Asset management operating earnings decreased by 20% to ZAR 928 million, largely as a result of higher planned operating expenditure in Standard. Our insurance entities have implemented the new accounting standard, IFRS 17, and the prior period numbers have been restated accordingly. Overall, and after attributing profits to banking business units for generating insurance sales, the group's insurance and asset management business units grew headline earnings by 22% to ZAR 2.8 billion. Liberty has distributed ZAR 5.7 billion to the group since the minority buyout. This increased dividend flow is linked to improved performance and a lower targeted capital coverage ratio in Liberty. The buyout of Liberty Two Degrees minorities, completed in late 2023, will deliver further capital synergies in 2024.
Structural realignments within the group, implemented in early 2024, will also deliver capital optimization opportunities, which cumulatively are yielding better returns from Liberty without increasing risk. IAM delivered an improved ROE of 13.1%, and the business remains focused on lifting this ratio above the group's cost of capital. The group's robust capital and liquidity position, shown on slide 29, enabled both our continued support of client growth and distributions to shareholders. The group's Common Equity Tier 1 ratio was 13.7%, and the group's liquidity ratios, as you can see here, remain well above the 100% regulatory requirements. The increase in the Common Equity Tier 1 ratio is a result of profit generation outstripping dividend payments and risk-weighted asset growth. Dividend payments shown here of ZAR 23 billion are increasingly being funded by our Africa regions legal entities.
Approximately 35% of this dividend is funded from Africa regions. We are pleased that the group's return on equity of 18.8% is within our target range of 17%-20% and well above our cost of equity of 15.1%. The board has declared a second-half dividend of ZAR 7.33 per share, bringing the full-year dividend to ZAR 14.23 per share, up 18%, and a payout ratio for the full year of 55%. I will now turn to our business units and regions. On slide 23, we have represented the group's headline earnings by business unit on the left and by legal entity on the right. These charts demonstrate the diversity and breadth of our client franchise across our four business units and 26 countries. In this period, Africa regions contributed...
contribution to group headline earnings was 42%. The large contribution from offshore stems from significantly increased revenues in our operations in Jersey and Isle of Man, driven in part by higher interest rates. Our four business units all contributed positively to the 2023 results, with increasing revenues, better efficiency ratios, and increasing returns as measured in ROE. CIB remains our largest business, contributing 35% of the group's revenues. This waterfall chart on slide 35 illustrates contributions to the group's earnings growth in 2023 and shows again that all four business units contributed positively. PPB grew headline earnings to ZAR 10.7 billion, up 27%. BCB improved ROE to 37% on the back of 27% in headline earnings growth. CIB added ZAR 4.6 billion in earnings to end at almost ZAR 20 billion of earnings, up 30% year-on-year.
I have already covered the key drivers of our insurance and asset management business. ICBCS recorded a strong operational performance, and our share thereof in rands was ZAR 1.3 billion as you can see on this chart. Earnings were lower than in the prior period due to once-off insurance claim receipt in January 2022. I will now cover Africa regions legal entities, starting on slide 36. Africa regions delivered a perfect and outstanding performance. A larger balance sheet, higher interest rates, higher transaction volumes, a recovery in international trade, and strong growth in trading revenue all contributed to an overall outcome of ZAR 18.2 billion in earnings, up 49% year-on-year. Our Africa regions financial performance was excellent across all three subregions in terms of earnings growth and improvement in return on equity.
Despite macro issues which have emerged over the last 18 months regarding sovereign vulnerabilities and weakening exchange rates, we remain certain that the value of our Africa regions portfolio is in its diversity and in its growth profile. In these graphs, which you're likely now familiar with, we show the headline earnings from Africa regions since 2013. The diverse portfolio has delivered an impressive 18% compound annual growth rate in earnings in rands over the period. On the left-hand side, we have shown our summarized regional split. On the right-hand side, we've included a split of our top 8 countries, and their respective CAGRs are also shown here. Given that some of our listed subsidiaries have not yet released results, we have not included country-specific numbers here for 2023.
You can see from these graphs that despite Ghana's foreign and local debt default, which we were directly exposed to and which impacted our clients in that country, our West Africa growth rate remained strong at 19% over the period shown here. This illustrates the impact of the portfolio effect of our countries of operation. That concludes the discussion on our 2023 results, and I will now turn to our outlook for 2024. As can be seen on this slide, we are currently tracking ahead of our 2025 targets on a straight line basis. While our excellent 2023 result is an important milestone on route to 2025 and places us in an advantageous position to achieve our 2025 targets, we are not there yet. The next two years in 2025 to 2025 will require continued diligent resource allocation and cost discipline.
From a macro perspective in 2024, global risks are expected to persist, but our base case is for a soft landing, with inflation falling, providing scope for interest rate cuts and real GDP growth stabilizing. In sub-Saharan Africa, we see growth accelerating, driven by East Africa and a generally declining inflation and interest rate environment. In South Africa, our economics teams have penciled in lower inflation and a cumulative 75 basis points rate cuts starting in July 2024. Real GDP growth should improve in South Africa to 1.2%, subject to easing of the electricity shortfalls and logistics constraints. The South African election outcome is not expected to drive a change in policy direction. On slide 41, we present a detailed macro analysis, which informs our short-term guidance.
Because of the growing importance of Africa regions in our mix of earnings, we thought it would be useful to distill a complex set of macros across our countries' operations into four key metrics on a portfolio weighted basis. Let's start with inflation on the left-hand side. Despite increasing inflation expected in Nigeria, Angola, and Zambia, you can see that mostly we are expecting inflation to come down in 2024, with the weighted average inflation rate reducing to 7% for the group. On interest rates, we are expecting a more mixed picture, resulting in the weighted average rate reducing marginally to 11.4%. Real GDP growth is expected to accelerate on average from 2% in 2023 for our portfolio of countries to 2.2% in 2024.
These macros are generally supportive of growth across our network of operations on a local currency basis, and our financial plans evidence this growth. However, in 2024, we are expecting further local currency devaluations relative to the rand and shown in the graph on the right-hand side. On a group weighted average basis, we expect currencies to be 5.8% weaker in 2024. While local currency balance sheets are growing and revenue growth is expected to remain robust, this translation impact is expected to create a meaningful headwind for rand growth in 2024. On slide 42, I will take you through our customary short-term guidance, and I remind you that this guidance is shown on a rand basis.
For the twelve months to thirty-first of December 2024, we expect the following: balance sheet growth to remain slow in the first half, but improving in the second half. Average interest rates are expected to be marginally down, and pricing is expected to remain competitive. Accordingly, net interest income is expected to be up by low- to mid-single-digit % growth in rands year-on-year. Fees will be supported by a larger client base and increased client activity and higher client spend. Trading revenue is likely to decline off a high base in 2023, but of course, will be subject to market developments and client flow. This results in non-interest revenue growing by low single-digit %, as reported in rands. While there is heightened focus on costs, we need to continue to invest in our business to remain competitive and to grow.
Banking cost growth is expected to be similar to banking revenue growth, and hence we anticipate flat to slightly positive jaws. On credit, our clients are likely to remain constrained until interest rates start to decline. Credit impairment charges are expected to peak in the first six months of 2024, driven primarily by ongoing strain in the Personal and Private Banking portfolio. For the full year, the credit loss ratio is expected to remain within, but near the top of the group's through the cycle credit loss ratio of 70-100 basis points.... Earnings growth and improved returns are anticipated from the Insurance and Asset Management business. The group's 2024 return on equity is expected to remain well anchored inside the group's target range of 17%-20%.
Ongoing capital generation will support distributions to shareholders, and dividend payouts will be in the range of 45%-60%. This guidance for 2024 keeps us on track to achieve our 2025 targets. While uncertainty is expected to remain elevated, our business is well diversified, growing, and resilient. We are focused on delivering against our strategic priorities and looking forward to delivering another set of robust results in 2024 and beyond. That brings the results analysis to a conclusion. Thank you for your attention. I will now hand over to Sim to conclude.
Many thanks, Arno. In closing, I'll spend a few minutes discussing how we see the next few years, unfolding and how we plan to use the strong position we have created to keep on winning in the future. Starting with slide 45, Arno has discussed the short-term outlook. Looking further ahead, we are entirely convinced of the good momentum and long-term prospects for sub-Saharan Africa. We think that the economy of sub-Saharan Africa will grow at around 4% a year for the rest of the decade, probably becoming the fastest-growing region in the world from around 2030. As both a cause and a consequence of growth, we estimate that Africa will require around $3.4 trillion in new infrastructure investment over the next two decades. This is financing that we are uniquely well positioned to mobilize.
As we are seeing, African authorities are adopting more orthodox policies and communicating more effectively with the markets. Investors are coming to understand Africa's risk profile more fully. We therefore expect that the higher prices paid by African sovereigns for debt, as compared to equivalently rated non-African countries, should decline. Standard Bank will continue to use our convening power to accelerate this process. We're very well positioned to arrange bond issuances for African sovereigns, as we did in 2023 for Kenya and Uganda. We're confident that South Africa's upcoming general election, as Arno said, will be free, fair, and largely peaceful. Our base case is that the outcome will encourage broad policy continuity and sustain structural reform, leading to gradually improving economic performance. In our view, the extent of structural reform in South Africa has been underappreciated.
Just to mention a few examples: 12,000 megawatts of private electricity generation is being constructed. A successful spectrum auction enabled the rollout of 5G. The next generation radio frequency spectrum policy enables secondary spectrum trading, and the rapid deployment policy enables more efficient deployment of towers and fiber. The Durban Container Terminal and Pier 2 have been concessioned, meaning that 46% of South Africa's port traffic will be handled by an international private sector contractor. 70% of water use licenses are approved within 90 days, and 34 countries are now covered by South Africa's e-visa system. We don't expect miracles in South Africa, but we do think that there's a very strong case for reasonable optimism that this country will start to grow significantly faster over the medium term.
We further expect that both Africa as a whole, and South Africa in particular, will continue to make steady progress towards a lower carbon economy, requiring further massive investment in green energy, urban infrastructure, and climate-resilient agriculture. For example, according to the International Energy Agency, funding Africa's climate adaptation and providing universal access to modern energy would together require investment of about $800 billion. Again, the Standard Bank Group is best placed to win in these markets. Of course, we have also contemplated the downside risks and upside opportunities. As is widely agreed, the world is looking highly volatile and uncertain, meaning that there is a lot of variability in the possible outcomes. However, as the following slides will show, the Standard Bank Group is well prepared for a broad range of possibilities.
The most successful and sustainable financial services businesses are those which are most robustly diversified and large enough to be able to operate at an efficient scale. Through our four business units, we offer the widest and deepest range of financial services available on the continent to clients ranging from individuals at every income level to the largest multinational corporations. Our African portfolio contains well-established businesses in 20 African countries and is linked to the world's key financial centers through our offices in London, New York, Beijing, and Dubai, and through our offshore hubs in the Isle of Man and Jersey. Despite geopolitical tension and rivalries, our brand, franchise, capabilities, and good faith are trusted by regulators and clients alike in the United States, in Europe, in China, and throughout Africa. We're not complacent about this.
We spend a lot of time and energy making sure that we live up to this reputation. With total assets of over ZAR 3 trillion, ZAR 178 billion in revenues, and ZAR 43 billion of headline earnings, we are the largest financial services business in Africa by almost every single measure. Standard Bank has recently been ranked as the most valuable banking brand in Africa in 2024 in Brand Finance's annual ranking of the world's top 500 banking brands. This is the third consecutive year that we have received this accolade, and the award affirms our commitment to providing consistently excellent service for our clients and to driving Africa's growth. Moving to slide 47, we focus intensely on serving our clients with consistent excellence. As a result, we have built a very large, very diverse, and importantly, growing client base.
PPB and BCB have grown their client numbers steadily over the last two years since 2021, growing annually by 7% and 4%, respectively. The number of clients in our Nigeria Pension Fund Administration business grew annually by 6% over the same three years, and total CIB client revenues expanded by 26% annually since 2021. Revenues from multinational clients make up more than 60% of CIB's client revenues. Our clients are doing more with us using our digital channels. PPB's clients performed almost 2.9 billion digital transactions with us, 30% more than the prior year, and BCB's clients completed 155 million digital transactions, growing by 7%. Our business units are working increasingly closely together to broaden our relationships with our clients.
For example, we saw a 40% growth in FlexiFuneral gross written premiums written by IAM through PPB's channels. Our digital investments are clearly enabling us to serve our clients better and faster. Our systems remain secure and have remained very stable for more than a year and a half. We're extracting concrete productivity gains. For instance, our retail clients in South Africa will have noticed much shorter wait times when they call on us. We are making good use of AI in several parts of the business, including in sales and in credit. AI applications are enhancing both efficiency and client experience. However, it is important to say that we are not trying to be the bleeding edge. We believe that a fast follower stance on AI is appropriate for our group, at least for the time being.
The energy transition is among the most important social and economic themes of our lifetimes. It is here where the greatest risks arise for Africa, and also where a great deal of money can be made and the largest possible impact achieved. We therefore continue to extend our leadership in sustainable finance. In 2023, we mobilized more than ZAR 50 billion in sustainable finance, reaching a cumulative total of ZAR 105 billion since the beginning of 2022. This is when we introduced our target to mobilize more than ZAR 250 billion of sustainable finance by 2026. We are well on track to meet this target. This year in South Africa, we funded 1,113 megawatts of renewable energy, reaching a cumulative total of 3,450 megawatts.
In total, our financing of renewable energy in 2023 was more than 5 times greater than our financing of non-renewable energy. This ratio is significantly better than the average for banks signed up to the Net-Zero Banking Alliance, where renewable energy funding is only 92% of non-renewable funding. Our commitment to be a leader of the just transition for Africa is unshakable. This includes a commitment to support non-renewable energy investments when their social and environmental benefits outweigh their costs and when they are part of credible transition plans. In some cases, for example, funding new brown energy sources in Africa will be net positive for global emissions. The benefits of building capacities and the reputation discussed in the past few slides are visible here in slide 50.
The group's earnings have grown at 10% annually over the past decade, and we now generate 42% of our headline earnings from our Africa regions portfolio. We have had a particularly good year in 2023, thanks to the strength of our portfolio, the breadth of our network, and the depth of our capacities. We deliver our strategic commitments, and we grow very steadily over the long term, whatever the economic weather. We are well positioned to continue to grow over the longer term and to deliver value to both our clients and our shareholders. In 2024, we have the following priorities: First, continue to grow our client base through our unrivaled product offering and network. Second, in all four business units, focus on defending where we lead, growing where we are subscale, and optimizing to create capacity to invest where needed.
Third, manage risk effectively while supporting clients. Fourth, focus strongly on costs, but continue to invest for the future. In a year of slower revenue growth, cost control will be particularly important. We are already working very hard to ensure that our cost metrics for 2024 stay within the targets to which we are committed. Fifth, continue to allocate resources diligently to support continued franchise growth. As Arno has indicated, the group will grow more slowly in 2024, requiring us to be disciplined in serving our clients with excellence and efficiency. But we remain confident that we will meet our 2025 commitments and that we will keep winning in our markets. As always, a sincere gratitude, our sincere gratitude to our policymakers and regulators for the world-class regulatory environments that they create for us and for our sector.
We are equally grateful to our shareholders for their continued support. We thank all our people working across Africa and beyond for their professionalism and dedication. Most importantly, we thank our nearly 19 million clients for their continued trust in us. Thank you, all. That concludes our presentation. We'll now take questions, and I'd like to invite my colleagues to join me on stage for your questions. Mrs. Funeka Montjane, CEO of PPB; Bill Blackie, CEO of BCB; Kenny Fihla, CEO of CIB; Yuresh Maharaj, CEO of IAM; and, Arno Daehnke, our Chief Financial Officer. As they come up, we'll start with questions here at the leadership center, then we'll turn to the conference call, and finally, we'll do the Teams webcast.
As a reminder, you should submit your questions on Teams, and if you want to do so, do so by clicking on the Q&A link on the right-hand side of your screen. For the folks here at the GLC, please, if you could identify yourselves. Because of the bright lights, we can hardly see who's in the room. Are there any questions from the floor?
Mo-morning, Sim.
Morning, Clem.
It's Clem. Thank you. If I may, looking at your insurance and asset operation ROE, how does your 13% compare with what's normal in the industry?
Naresh, do you mind picking that up?
Yeah. Clem, thanks. Thanks very much for the question. If I anchor on life insurers, and, I mean, those are publicly disclosed, I'd say that the range on ROEs for the principal Tier 1 life insurers in the country is around, I would say, 15%-18%. And some are sort of within, sort of closer to the 15, and I would say there's one outlier that's above that. So that would be an indicative range.
If I may follow up, how do you see us progressing to those comparable levels?
Sure. I think on two, twofold, Clem. One would be, there's the capital efficiency program that we are busy with, and I think Arno alluded to that earlier. I think that there's a bit more that we could do there, and we'll hopefully conclude that by the end of 2024. And then over and above that will be top-line growth, and growing the business revenues in excess of inflation, I would think for the next two years will actually get us over those hurdles.
Thank you.
Contextualizing it in the context of the group, please.
Yeah. Thank you. From the group perspective, the Liberty buyout continues to be a success, and we are realizing the synergies and benefits we had anticipated.... In fact, the capital benefits from a group perspective are exceeding what we had expected. On the podium just now, I mentioned ZAR 5.7 billion of capital synergies already directly realized, and also mentioned that additional benefits will be flowing through in 2024 relating to corporate restructures and Liberty Two Degrees. On top of that, we're also extracting revenue and some cost synergies, but mostly revenue synergies on increased sales of products such as FlexiFuneral, for example, which the retail bankers are distributing, and this is being obviously manufactured in the IAM pillar.
This is a valuable proposition for our clients and for our shareholders, and we continue to drive the return on equity higher for the group overall through this partnership and integration of Liberty.
Another one, Clem?
Yes, if I may. How do you see the Liberty Two Degrees benefiting that ROE? And next, how do you see yourself running with that property portfolio, given that your predecessors sold out a property many years ago 'cause they found it wasn't the most exciting activity?
Yuresh, do you wanna cover that? And Arno, if you could cover the group position.
Sure. So let me cover the, the property position. I think firstly, Clem, one is if we stand back and look at the, the life insurance book, it's adequate backing asset for long-term policyholder liabilities, and one that we've used within the Liberty portfolio for a number of years. So maybe that's the first piece. The second is in terms of the, the portfolio anchored within the retail, trading space as opposed to office complexes. And if you look at the strength of the portfolio compared to the MSCI index around trading densities, and footfall, and has been sort of well exceeding those levels. So that's one that we continued to manage the portfolio efficiently, but equally ensuring that those assets are an appropriate backing asset for our long-term policyholder liabilities.
Maybe just to add on there, having the properties on the group's balance sheet makes us more capital efficient, so again, there's capital relief coming through there. And also, it allows us to be more flexible with this property portfolio. Some of them need to be maintained, as Yuresh has said, for policyholder liabilities to back those. But overall, this is an accretive business for the group.
Are you done, Clem?
If I may. Sorry, one more.
Last one, Clem. Thanks.
Your dividend cover. I see you increased the dividend cover this year. Is there any intention in that, or was it just exuberance last year?
I wouldn't call it exuberance last year. When we consider the dividends with our board, we take into account the forward-looking growth prospects of the group. We take into account the capital adequacy of the group. And taking all of those measures into account, as well as the available cash resources, we then select the correct dividends. Through the cycle, we've consistently paid between 50%-60%, even though our cover is between 45-60, and 55% is sort of actually at the upper end of that range. So we, we're quite comfortable with that.
Do I have any questions from the floor? Okay, there doesn't seem to be any. Can we take questions from the call? Operator, are there any questions on the conference call?
Thank you. Yes, there are. First question comes from James Stark of RMB Morgan Stanley.
Hi, good morning, Sim team. Thanks for the opportunity and congratulations on a very strong set of results. Three questions from me. Firstly, perhaps for Arno, on the credit loss guidance, you mentioned the pressure peaks in 1H 2024. Can we take that, do you expect to remain within the range throughout the course of the year? The second question relates to ICBC Standard. We saw during 2023, and particularly the second half, there was a sharp slowdown in relative performance against your 1H. I recall there was a provision release in the first half. Can you please give us some color on the outlook for this business, given that the second half of 2023 looks like the performance is trending a lot softer, and how we should think about that going forward?
If I could supplement that with, if you could give us any comments on the progress made on exiting your 40% stake there. And then lastly, if you could just give some clarity on your banking ROE, the outlook, a very strong 19%. Can you hold that sort of level on into 2024? Thank you.
Yeah. Thanks, James. On the credit loss guidance, we did guide at the top end of our target range for the full year. We don't expect to be piercing that in the first half, but, you know, it's the full—I think you should really take guidance for the full year, which is at the top end of our range, within the range. I think that's the strong guidance you should take. On ICBC, I said a particularly good performance, exceeding expectations significantly in the first half of 2023. Second half of 2023 was more moderate, and we continue to see good operating performance coming out of that entity. Possibly not as strong as the first half of 2023, but more aligned to the second half of 2023.
The progress on the sale, we continue to engage with ICBC in Beijing, and, at this stage, there is no tangible update I can give to the investment community on that. But we remain resolute that in the longer term, we would like to divest from-
Keamogetsi please go ahead. Please go ahead.
Hi, Sim, Arno, and team. Thanks for the opportunity, and congratulations on the results. Two questions from my side: Can you please provide an update on your strategies to protect margins in South Africa? And almost a follow-up on that, how far are you in your structural hedging program that you mentioned at the half year? And secondly, how have collections trended, as well as early arrears since year-end in PPB? Are these better or worse than at a similar point last year? Thanks.
Arno, let's give you a bit of a break. Can I ask Funeka to take the second question, and, Arno, if you could take the margins question?
Thank you for the question, Keamogetsi. Yes, so second half, so if we compare the first two months of this year compared to the first two months of last year, certainly a significant slowdown of inflows, either into Stage 2 and 3, and we are also starting to see some level of moderation also in terms of growth prospects as well. So we're starting to see a bit of an uptick from an asset growth perspective as well. Thank you.
Margin?
On margin, yeah, we expect margins to continue to track well and track high. We have implemented an endowment hedging strategy on the podium. I said we've reduced our sensitivity from ZAR 2.1 billion for a 100 basis point rate cut in rands to ZAR 1.4 billion. That's probably gonna trend down to ZAR 1 billion, so that does protect margin. Pricing competition is high, I mentioned that on the podium, but interest rates are expected to continue to be supportive for margin. In 2025, we are likely to face more margin headwinds and then have some reductions in margins.
Thanks, Honor. Operator?
The next question comes from Chris Steward of Ninety One.
Good morning, Sam, and team. Thanks very much for the opportunity to ask questions. Just I guess two from my... Maybe three from my side. If you could give me a sense of the just the proportion of that endowment sensitivity by business unit, just an approximate split of that sensitivity, how much of it is booked by each of the underlying business units? Then I'm just gonna follow up James's question on ICBC Standard. I mean, the... Unless there's been a restatement that I've missed, the H1 performance was one, just over ZAR 1.1 billion. The second half was about ZAR 140 million. So it's more than a modest slowdown in the second half.
I just want to check that I'm understanding Arno's guidance, that one should use the sort of second half run rate of ZAR 140 million per half as more of a run rate for FY 2024 expectations, or whether I've misinterpreted that. And then finally, on the prospects for the Nigerian operations, I mean, we're all well aware of the currency headwinds that you're gonna feel or you're gonna suffer on translation. I'm much more interested in the operational outlook for that business. We've seen some regulation effectively talking about the net open position and the fact that the net open position should be eliminated, which I think flies in the face of good risk management, when a portion of your risk-weighted assets are denominated in dollars.
And in addition to that, just changes in the FX market, does it materially negatively impact on the potential to make money in that market as a long dollar franchise and a, and a foreign bank or a, a foreign-owned bank, if you like?
Can I go, Honor?
Okay. Well, thanks, Chris, for that. The sensitivity by BU, I assume you're referring to interest rate sensitivity, right? To interest rate changes.
Yeah, just that sort of endowment. I mean, where's the bulk of it booked?
So the business unit most impacted by endowments is the Business and Commercial Banking business unit. Their loan-to-deposit ratio is quite low, so they do have a larger endowment base proportionally to their business compared to the other business units. That's then followed by the PPB business unit, and thereafter, the CIB business unit. So in that sort of proportion.
That is sort of 60, 60/30/10, if I was to put numbers to it? I mean, just very roughly speaking.
Yeah, maybe when we meet, Chris, we can give you a bit more of a breakdown on those numbers then, if I can just-
Okay.
give it to you at that stage.
All right, cool.
Do ICBCS-
Yeah.
And then Kenny will do Nigeria.
Mm-hmm. Nigeria, yeah. On ICBCS, yeah, look, the slowdown was quite marked in the second half, as pointed out already. We do expect a better performance than 2x 2H 2023, but not as strong as we've seen in 1H 2023. So for the full year, we don't expect in 2024 as strong a performance from ICBCS as we had in 2023, and that's because of a non-repeat in the first half.
Kenny, do you mind addressing Nigeria?
Well, thank you very much, Chris, for that question.
With regard to the net open position, firstly, we did not have any massive negative impact on us in that we did not have a massive net open position that we needed to close out as directed by the Central Bank. But we saw an inflow of dollar liquidity into the market after that directive, which assisted the naira to strengthen slightly, but the naira then deteriorated after a slight sort of strengthening post that directive. In the last couple of weeks, though, there are a number of positive developments that we are starting to see filter into the Nigerian market. It's gonna be a slow grind. The intention and the direction of travel, we think, though, is positive. Changes to cash reserving, and we've received surplus cash that was held by the Central Bank.
We think that's positive because it is releasing a lot of liquidity into the market. They've done an audit of outstanding FX allocations, and that audit has confirmed that indeed the problem is not as big as was initially anticipated, and the Central Bank is fairly confident that the FX allocations would be eliminated in the next, or a lot of the outstanding allocations should be cleared, in the next, sort of couple of months or so. All of those developments, in our view, are positive.
The real issue with regard to Nigeria is the economic, I guess, pain that is being experienced as a result of the removal of subsidy and the transition that is required for that economy to undertake before we can start to see GDP growth bouncing back and ultimately the country, the country recovering from the current economic slump as well as the FX shortage.
Thanks. Do you want to add anything, Honor?
Thanks.
Satisfied, Chris?
Sorry, if I could just have one very quick follow-up to Kenny. Am I then to understand that, you know, illustratively, if you've got 30% of your risk-weighted assets denominated in dollars, you can still hold 30% of your equity in US dollars despite the net open position regulation?
Honor take it? Honor.
Yeah, Chris, in Nigeria, the Common Equity Tier 1 needs to be denominated in Naira. There are opportunities-
You have to supplement with non-Set one.
CET1 has to be naira, cannot be dollar-denominated. So we do run CET1 volatility. Our capital adequacy has come under pressure, but we do not anticipate to having-
Yeah
...put additional capital into that business. They are managing it through other means of raising Tier 2 capital and alternative Tier 1 capital. Tier 2 capital can be denominated in dollars, and we are busy engaging with the regulators if we can inject AT1 capital in dollars into Nigeria to manage the currency mismatch.
Thank you. Yeah, okay. Super. Thank you very much.
Thanks, Chris. Operator, any more questions?
Yes, sir. The next question comes from Harry Berger of Anchor Stockbrokers. Please go ahead.
Hi, good morning. Thanks for the opportunity. Just three questions, please. Do you see any major headwinds to non-interest revenue other than the trading revenue and currency translation impacts in 2024? Can you possibly give us a sense, in terms of growth by business unit into 2024? And then maybe, in terms of the stage three or stage three coverage or loss given default assumptions in mortgages, do you see further potential to change assumptions into 2024? And lastly, with CET1 ratio at 13.7% of group, Standard Bank of South Africa at 12.7, when do you think in your- that kind of ratio gets too high in your thoughts? Thank you.
So Arno, just to do a bit of division of labor, please deal with Set one, and then the PUs, if you folks could please deal with the NIR headwinds and the Stage 3 question.
Perfect. Yeah. Hi, Harry. Thanks for those questions. 13.7% certainly allows us a bit of latitude still for growth, organic or acquisitive. So that is probably on the higher side, but as you have seen, the growth. The group is on a strong growth trajectory, and we just like to preserve that capital for that. You know, through the cycle, we'll probably be somewhere between 13% and 13.5%.
Great.Funeka ?
Thank you. Just on the NIR headwinds on the PPB businesses, we don't think so. We think that I will continue to see double-digit growth in NIR, just supported by client growth and increased activity, as well as, the growth in our partnership with IAM. And then on mortgages, you would have seen that, there's a decrease in coverage for mortgages this year, and that's really largely because of the change of mix. So you've got a lot more new two-stage three clients that are there. But notwithstanding that, you will see that we still carry the highest mortgage coverage in the market. We think that's enough, more than enough to help us to work out the accounts that are there in Stage 3. Thank you.
Bill?
Good, then, sir. Thank you. So just, just let's start with the impairments first. You know, if you, if you look at the group as a whole and, BCB specifically, we followed a very classic pattern of impairment growth, hitting first the PPB segment and then coming into, BCB, particularly in the second half of last year. We've seen that continue to climb. We do expect that we sort of- we will top out now. We were at 1.56 basis points, which is just outside of our, our range guidance, at the end of the year. So we hope through the 2024 period, we'll be able to bring that under control.
With respect to NIR growth, you know, it really is about growing client numbers, growing client depth, and growing entrenchment, and that's really what our focus is for 2024 across the portfolio. There's still quite a lot that we can do in terms of client growth, both in South Africa and Africa regions, together with improved entrenchment in the portfolio as a whole. So we do think that the outlook remains positive for NIR growth.
Great. Yuresh, any comment?
No, I think Funeka has covered it.
Covered.
I think the key is the partnership with PPB and BCB.
Great. Kenny?
I mean, I think the biggest headwind is as covered by Arno, which is more the strengthening of the rand against local currencies in the Africa region. Outside of that, we think that the performance of the businesses on the non-interest revenue will continue to be strong, but with global market, usually when volatility affects trading revenues, that tends to create a positive momentum for client flows, and it is more how long the transitional period is going to be. But we are fairly confident that the teams are focusing on the right things, backing the right clients, and that that transitional period shouldn't be that too long.
Thank you. Operator, any further questions?
Yes, sir. The next question comes from Charles Russell of SBG Securities. Please go ahead.
Good morning. Great numbers. Well done. And thanks for the detailed presentation. I've also got, three questions in keeping with the trend. You note fifteen point one percent cost of equity. How do you account for Africa regions in that number? The second question is, you separated out the top eight countries in Africa regions. Should Zimbabwe not have been included in those charts? And then the third one is: how do you guard against the risk of damaging the franchise going forward with a heightened cost focus, especially in 2024?
Arno?
Yeah, on the cost of equity, we use the Capital Asset Pricing Model, Charles, which is fairly standard. We can go into detail on the time series of the data we use. I think that's where some of the banks diverge, different time series and different weighting mechanisms on that. That cost of equity will reflect the risk of Africa regions coming through on our P&L volatility, and then consequently, the share price volatility through the beta measure in that metric. We do also calculate and infer from that what is the cost of equity for Africa regions in local currency. In local currency, we expect that costs of capital for Africa regions being 20% overall as a portfolio. In rands, the cost of equity for Africa regions is 16% after having translated that into rand.
We need to differentiate between those two cost of equities. And Charles, when we meet, maybe we can spend a bit more time going through our recent calculations on that. On the top eight, Zimbabwe included in that, Zimbabwe is in a quite volatile situation at the moment from a macroeconomic point of view, from an inflation point of view. And when we look through the cycle, we don't include Zimbabwe in our top eight countries. If we look at a specific point in time, it is included in that. Do-
Take the cost question.
The cost question. Yeah.
Yeah. Charles, at the end of the day, we have a duty to make sure that we continue to invest to the extent that that investment produces growth. And certainly, where we've got a cost associated with growth in revenues, we'll continue to make those investments. But I think we are in duty bound to be far more disciplined and more circumspect, given the headwinds that we face. And we'll be very, very careful to make sure that we don't cause irreparable harm to the franchise as we tighten, tighten our belts.
Thank you very much.
Thanks. Any further questions, operator?
Thank you, sir. We have no further questions from the lines. Thank you.
Thank you very much. Sarah, do you have anything on Teams?
Thank you, Sim. The first question is from Ross Krige, with two questions. The questions are as follows: Will there be a need to account for Ghana using hyperinflationary principles in 2024? And does OPEX's guidance incorporate specific savings activities, and if so, would you mind elaborating on these?
Do you wanna take them, Arno?
Yeah. On Ghana, obviously, by IAS 29 principles, we assess the Ghanaian environment on an ongoing basis. You probably know, Ross, that there are qualitative and quantitative parameters we have in our hyperinflation policy. Our assessment on the ground, which is also aligned with the Ghanaian Institute of Chartered Accountants, is that the Ghanaian environment is not hyperinflationary. It is not hyperinflationary, and that's based on the policy and the quantitative and qualitative factors we've applied. Interestingly, just recently, Ross, in fact, yesterday, I noted, was it a Goldman Sachs research report targeting inflation at 15% by the end of the year in Ghana? So I think we've turned a corner in Ghana, and inflation is coming down in that respect, and that was an independent research report someone I actually noted.
OPEX savings.
On the OPEX savings, yeah, of course, we've, we've got tight control on costs in 2024. We've agreed our targets with each of the accountable areas, and we have got multiple initiatives of savings embedded in those cost control targets. These savings are, as you probably have discussed with us previously, related to optimization of our distribution footprint, particularly branches and our physical distribution footprints, and Funeka may wanna give more information on that. It's continued to focus on our technology spend, specifically the run the bank spend. It continues to assess how we run a lean corporate center and various other parameters and initiatives we have underway in the group to think about cost efficiency. So they are embedded, and they are being executed within the business units and the various areas of the group.
I think that covers it. Sarah, any more?
The next question is from Rajay Ambekar. Please, can you explain the ZAR 9.3 billion Forex loss reported in comprehensive income?
... Yeah. Yeah, it's not a Forex loss, it's the impact of the foreign currency translation reserve. And we've had a number of depreciating currencies which impacted the FCTR negatively, and those include specifically Nigeria, Zimbabwe, Zambia, Angola, Kenya, and Malawi. This was offset by an FCTR credit for currencies which strengthened relative to the rand, and these included our pound-denominated entities, for example, of Isle of Man and Jersey, Mozambique, ICBCS, Uganda. The net impact on the FCTR then is ZAR 5.4 billion.
Sarah?
The next question is with regards to Kenya and the operations in that country. Management have mentioned in the past intentions to improve the position in the market. Can you provide an update on any acquisitions or inorganic expansion and the expected timeline? And then there's a second question: The ROE for East Africa is 21%. This is below Africa regions at 28%. What are your plans to improve the ROE in East Africa?
Bill, do you wanna pick that up and give Arno a bit of a rest?
Absolutely. Thank you. Yeah, and, and thanks for that question. So as, as we've said within the group, that East Africa is a focus area for ourselves. There's enormous amount that we can do in East Africa just from an organic perspective, to start with. As you'll know from our results, that CIB have actually built a very strong position in East Africa collectively. Between IM, BCB, and, and PBB, there is stuff that we can do, organically within the business to improve our market shares in each one of the product lines. We're very focused on that at the moment. We do see the opportunity, the commercial opportunity in East Africa. As regards further sort of growth or inorganic growth, of course, as opportunities arise, we would look at those as we do as a group collectively over time.
Our primary focus at the moment is organic improvement of our business.
Arno, are you happy to take the ROE question?
Yeah. I mean, 21% ROE is still a good business. That's a rand ROE, so we differentiate between local currency and rand ROEs, and that's a good business. But exactly as Bill says, we would like to scale it further and improve that ROE further. And we found in those countries where we are scaled fully, we tend to be more dominant and have better competitiveness, and can improve the ROE on the back of that. So that's exactly the strategy to improve that further.
Sarah?
There's another comment with regards to the Kenyan shilling. It reads as follows: With the Kenyan shilling being the best performing currency year to date, what's your outlook so far, and have you revised your outlook in recent months?
Yeah, I mean, it's got obviously to do with the Eurobond refinancing, which we have got confidence in will be done successfully and executed, and the outlook for the Kenyan sovereign is much improved compared to some uncertainty, I guess, a year ago. And obviously, that reflects in the currency as well.
Thank you, Sim. Those are all the questions on the webcast.
Thank you very, very much, Sarah. There being no further questions, we've come to the end of today's proceedings. Thank you all for your time. We really appreciate you taking an interest in us. Please, those of us here at the GLC, please join us for refreshments outside and have a wonderful day further. Cheers!