Okay, great. Good afternoon, everyone. Thanks very much for joining the Standard Bank Group Pre-Close Call this afternoon. My name is Sarah Rivett-Carnac, and I'll be managing the call. As you will be aware, we issued a voluntary trading update on SENS this morning, referencing the financial trends for the group for the five months to the end of 31 May 2025, and providing commentary on that relative to the five months ending 31 May 2024. We also reaffirmed our guidance across our three core metrics for the 2025 year, which are namely revenue growth, cost-to-income ratio, and ROE. In this call, we'll cover the highlights of that announcement, and then we'll open the line for questions.
On the call today, we have Arno Daehnke, the Standard Bank Group CFO, and with us, we also have Brooks Mparutsa, Barbara Bell, and Sayuri Govender, as well as Villa Thunberg from the four business units. Sayuri has recently taken over from Lukle as the PPB CFO. I will now hand over to Arno. Arno, thank you very much.
Hello, everyone, and thank you for joining us this afternoon. I will assume that most of you have read the announcement we issued this morning, so I can be brief and then turn over to questions and answers. Starting with the macroeconomic developments, in the five months to 31 May 2025, uncertainty related to U.S. trade policies and geopolitics impacted macroeconomic dynamics and monetary policy. Globally, this has manifested in weaker demand, a slowdown or pause in monetary policy easing, as well as weaker growth. Across the group's countries of operations on a blended basis, inflation has continued to moderate from elevated levels, and interest rates have declined, albeit more slowly than expected. While uncertainty has weighed on confidence and the GDP growth outlooks have been moderated down, sub-Saharan Africa is still expected to grow at 3.8% in 2025, as per International Monetary Fund assessment.
In South Africa, while the global uncertainty and the local budget-related wrangles weighed on confidence and demand, higher commodity prices and market volatility have presented opportunities. We were pleased that the budget was approved and that fiscal restraint was maintained. In South Africa, inflation has been low, providing scope for interest rate cuts, real wage growth, and increased disposable income and customer debt capacity. We have seen a 25 basis point cut in January and then in May as well. South African consumer price inflation for May was released yesterday, and you would have noted was flat on April at 2.8%. More broadly, we remain optimistic that the structural reform program will deliver an uptick in growth over the medium term.
Turning to our headline earnings trends for the first five months of the year, despite the considerable uncertainty and market volatility, the group's established and well-diversified franchise continued to deliver a resilient performance in the period. As highlighted in our announcement this morning, group headline earnings grew at around 10% in ZAR. On a cost-currency basis, headline earnings grew by mid-teens period on period, and the group's return on equity for the period remained well anchored within the group's 2025 target range of 17%-20%. Moving on to the operational trends and key business performance drivers, starting with our banking activities trends period on period. Net interest income was flat. Non-interest revenue grew by mid-teens. Costs were well managed, and credit impairments were lower period on period.
Looking at the balance sheet trends in more detail, the balance sheet growth has been slower than expected, impacting average balance sheet growth in the period. The uncertainty combined with the delay in the interest rate cuts negatively impacted demand for credit, particularly in our personal private banking business, in our business, and in our business and commercial banking business, both in South Africa. Looking at trends across the three banking business units, CRV recorded strong growth in the period, a trend continuing from last year. This was driven by continued strong investment banking origination activity, particularly in the energy and infrastructure, telecommunication, media and technology, and diversified industrials sectors. PPB and BCB South Africa have had a slower start to the year than initially expected. BCB South Africa has seen an uptick in disbursements more recently.
We need more time to determine if this trend continues, and if it does, it will take time to show up in average balances and net interest income. Turning to net interest margin drivers, average interest rates were lower. Pricing has been competitive, particularly in the mortgage market in South Africa, thus negatively impacting net interest margins. In contrast, the Africa region's portfolio grew faster than the South African portfolio, providing a positive fixed impact. Non-interest revenue was supported by growth in both key line items, fees, as well as trading revenue. Net fee and commission revenue growth was strong, underpinned by the group's growing and increasingly entrenched client base. The group's strategy of providing a full suite of relevant and appropriately priced solutions to our clients when and where they want them continues to resonate with clients to their fruit.
Market volatility drove client activity, which supported robust trading revenue growth period on period. Turning to banking costs, staff cost growth was driven by annual increases, higher incentives linked to improved performance, and a change in headcount composition to include more specialist skills. Other operating expenses growth was well contained. We continued to focus on executing our save-to-invest strategy. Activity-related costs were higher, in line with higher client activity. This was offset by slower growth in other areas, such as amortization and premises-related costs. Cost growth was slightly ahead of revenue growth period on period. This is in line with expectations at this point in the year. Moving on to credit trends, slower book growth, as well as a continued slowdown in earlier years, lower inflows into non-performing loans, personal and private banking led to lower credit payment charges period on period.
As expected, the group's credit loss ratio for the five months of 2025 was just outside the top end of the group's through-the-cycle range of 70-100 basis points, but it was lower in the five months of 2024. Briefly on insurance and asset management, growth in operating earnings period on period was supported by improved risk experience and lower short-term claims. Positive market returns and net client inflows supported the asset management business. Let's move on to capital. The group remains well capitalized and liquid. Share buybacks remain part of our broader capital management strategy. Since March, we have bought back and canceled ZAR 3 billion of shares. Further buybacks will be subject to the capital available and the expected business demands. As you would expect, we continue to model and plan for a variety of scenarios and outcomes.
By way of example, a downside scenario includes an escalation of the trade war and/or regional conflicts, lower confidence, and slower growth, whereas an upside scenario includes a de-escalation of the conflicts, lower inflation, lower interest rates, and faster growth. Importantly, against these model scenarios, the group remains appropriately liquid and adequately capitalized. For the six months to 30 June 2025, headline earnings growth is expected to be slower than the growth recorded for the first five months of 2025, and this is due to the particularly strong performance in the month of June in 2024 last year. More specifically, in the month of June 2024, we had some large credit provision releases and recoveries, and we do not expect these to repeat in June 2025.
Turning to our guidance for the 12 months to 31 December 2025, when we set out our guidance in March for the 2025 year, we did so based on what we knew at the time pre-the tariff policy announcement and various other geopolitical developments. As previously mentioned, uncertainty around monetary policy, trade policies, and geopolitical developments is currently elevated. This is weighing on the global and local macroeconomic outlook. Despite the uncertainty and macro downgrades, we are pleased to confirm our previous guidance for our core metrics. For reference, they are as follows: banking revenue growth of mid to high single digits in ZAR, a banking cost-to-income ratio that is flat to down year on year, and a group return on equity well anchored in the 2025 Standard Bank Group target range of 17%-20%.
Looking more specifically at our net interest income and our non-interest revenue outlook in the context of the trends seen to date, you may well ask, does this slow loan growth year to date put full year NII expectations at risk? Yes, possibly, but it still depends on demand and interest rate developments from here. We do expect loan growth to pick up in the second half of this year. Importantly, non-interest revenue has been better than expected, which supports our confidence in our revenue guidance. We will provide an update in August as part of our interim results. Subject to market developments, we still expect the currency impact to moderate in the second half of the year, as the devaluations experienced in 2024 feed into the base. We will report our financial results for the six months to 30 June 2025 on 14 August this year.
In closing, in the five months to the end of May, the group's operational and financial trends were strong, supported importantly by the continued momentum in our robust underlying transactional franchises, both South Africa and Africa regions. Thank you, Sarah. I will now hand back to you for questions.
Thank you, Arno. Please use the raise the hand function should you wish to ask a question, and we will unmute your line. I can see the first question is from Harry Buecher.
Hi. Good afternoon, Arno and Sarah. Thanks very much. Just maybe a little bit more clarity around the first half credit impairment charges, if possible, please. Should we expect any meaningful financial instruments credit impairment charges in the first half?
Can you possibly help quantify the June 2024 recoveries, or I guess maybe in terms of the decline that you noted in the first five months, can we see a decline for the first half of 2025 as well in terms of credit impairment charges?
Yeah, thanks, Harry. Overall, credit is trending as per expectations, and it is trending favorably. Previously, when we met, we spoke about peak credit charges all behind us, and that is certainly reaffirmed now. We see continued stronger health of our clients and strong repayment ability. We do expect continued improvement, and for half year, I expect us to be probably within the range of our 70-100 basis points, so continued improvement. You asked about the large recovery last year. There was a single name in the CRV business where we had a big write-back.
As you know, we're not at liberty to disclose that. It was fairly material. In our mortgage book, we also had some changes in modeling methodology on loss-given defaults, and that also resulted in a one-shot recovery. It was fairly material in June 2024, and obviously, we don't expect that to repeat in June 2025 this year.
Thanks, Arno. Maybe in terms of the financial instruments or sovereign credit impairments?
Oh, right. There's some pressure in our Mozambican exposure, exposures we have in Mozambique on the sovereign, but otherwise, fairly positive trends across the continent.
Great. Thank you.
There's no question on the chat, which I'll take, and then we'll refer back to the hands. Can you comment on the performance for ICBCS?
Yeah. ICBCS has performed well, particularly the metals business is doing well.
They're tracking better than expected and are contributing positively towards the group's performance. There was another question then on the trading income outperformance. South Africa has done well on trading as well as fixed income. We've generally seen a good performance in the underlying markets business.
There is another one more question with regards to the share buybacks. Can you comment on the total share buybacks to date?
Yeah. You'll remember, and you've put it in the chat there, there was ZAR 4 billion in 2024, and indeed, this year after March, between March and now, we did another ZAR 3 billion, so it's a total of ZAR 7 billion. That obviously will give some tailwind on headline earnings per share, between 1% and 2% or so.
Bearing in mind that the recent shares we bought only are canceled recently, and obviously, are still part of a big part of this year, our share base.
I think we refer back to the hands. The next first hand is Baron Nkomo. Baron, please go ahead. We cannot hear you. Sorry. Do you want to try again, Baron? Okay. We will come back to you, Baron. Maybe if you can put your question in the chat, we will come back to you. I am not sure what is happening with the line. Can we move to Simon Nellis?
Hi. Can you hear me?
Yes, we can. Thanks, Simon. Please go ahead.
Great. Thank you for the opportunity. Yeah, just maybe a few questions. First, on the growth outlook, you are saying that things are developing slower than expected.
Can you just elaborate on which areas have been under pressure and where you see improvement going forward? Then just on NII, you're guiding for, I think, mid-single digit growth, but it was flat year on year in the five months. Can you elaborate again on what needs to happen to get to your guidance? Then last, on the CLR, you're guiding for mid of the range, but it was, I think, slightly above 100 basis points, right? How do you get back to mid of the range? Do you expect a material change in CLR in the second half? Thank you.
Yeah. Thanks, Simon.
On the growth, as I indicated in the commentary just now, very robust origination in investment banking, strong growth in the corporate loan book, much more subdued in retail and also particularly subdued in small enterprises, more so than we had originally expected. In retail, we see very competitive pricing, particularly in the mortgage book, but we have seen some dispersions pick up there. We also see fairly strong dispersions in retail picking up in the personal unsecured lending portfolios. You would know, Simon, that on the VAF strategy, we've changed our strategy and are purposefully dialing back our origination activity in auto loans. In BCB, yeah, also subdued lending growth throughout the beginning part of the year. Again, if I look at some of the business lending activity, it's certainly picking up, and we're seeing a much stronger performance in the last two to three months.
We are expecting a better performance for the second half in both the retail and the BCB business. On NII guidance, I made the comments just now. Originally, we had guided mid to high single digits. We are probably not going to achieve that, but we are probably going to outperform on the NIR guidance. That means that overall revenue guidance should be intact, but NII under pressure certainly on the back of the slow start to the year in our retail and BCB businesses. Credit loss ratio, we are fully confident will be between the 70 and 100 basis point range, I think, at half year already, but for the full year as well. We normally have a higher charge at the beginning of the year, so we are not too worried about that. Seasonally, we expect a stronger run into the second half of the year.
As I said, it should be well anchored in the 70-100 basis points.
Thank you.
Great. Can we try and go back to Baron? Can we try and unmute Baron's line? Thanks.
Y eah. Hi, guys. Can you hear me now?
Yes, thanks. Please go ahead.
Sure. Maybe just a quick one. What initiatives are being prioritized to ensure that the cost-to-income ratio remains flat or declines year over year as per your guidance?
Yeah. I mean, we're always extremely focused on costs, and then there's always multiple cost streams underway in the different business units. We're currently focusing, as per usual, Baron, you would have heard us talk about the real estate footprint, professional fees, only really where they're necessary, technology rationalization, but still investing in technology where it needs to be. It needs to be.
Our amortization charge is coming down, and it is also helping us with some tailwinds. There are also various cost programs in our insurance and asset management business where we want to extract further efficiency from that business. Headcount is roughly flat at the moment, but we have had to pay and invest in some specialist skills, so we are not seeing our headcount complement growing. Incentives will be adjusted relative to the performance of the group. It is a big variable cost, incentives. If the group performance is more subdued, obviously, then there is an impact on incentives. That is also a cost lever we have. At the moment, we are comfortable with our cost growth. We are tracking slightly better than expected. The various cost levers we are pulling are bearing fruit.
Even though we've got negative draws at the moment, we expected that to be the case. We expect the draws to become flat to maybe slightly positive by the time of the full year, and that then will give us a CTI in the very low 50 percentile, maybe slightly below where we were a year ago.
Okay. Thanks, Arno.
Great. Can we go to the next hand, please? Can we unmute the hand?
Afternoon. Can you hear me?
Yes, we can. Please go ahead. Thanks.
Okay. Yeah. Just in terms of your credit loss ratio, if you look at the trends in the Bayer 900s, you've been increasing your provisions quite a bit over the past couple of months. And then if you look at how your credit loss ratio compared to your peers for FY2024, you guys were looking a lot better.
Why now is your credit loss ratio reaching through the cycle range? Why have you been increasing your provisioning so much over the past couple of months?
Yeah. I guess, first of all, there is a seasonal impact. We always have a higher credit charge at the beginning of the month. I think that is important. I mentioned to an earlier caller, I think it was Harry, possibly, that we have got some pressure in Mozambique. We have downgraded the Mozambican sovereign. It is not a default, but a downgrade, and we have provided for that. Also, the macro outlook has deteriorated, as I am sure all of you appreciate. As part of the IFRS 9 forward-looking modeling, we have done some adjustments on the forward-looking outlook, the macros. I want to reiterate again, we are prudently provided.
Our credit loss ratio is at the moment marginally above the 100 basis points top-end range of our credit loss ratio range. We expect it to be within 70-100 basis points by half year, and we expect it to be further within that range by full year. It is, for us, not a surprise adverse development when it comes to the credit charges. It is tracking as per our expectations.
Yeah. If I could ask another question, just in terms of your buybacks, I think at the last, I think in March, you mentioned that the buybacks that you have done, where you are trying to dilute the impact of the shares that you issued to the Liberty minorities.
Now, with the buybacks that you've done year to date, is that over and above canceling out the shares that you had to issue to Liberty, or is it still you're trying to work that through, that dilution?
Yeah. That dilution, we issued around ZAR 10 billion worth of shares. I mentioned earlier we did ZAR 7 billion of buyback cumulatively now, so there's still a bit more to go. Irrespective of getting to ZAR 10 billion, we'll possibly, if we've got surplus capital and no immediate opportunity to deploy the capital at the right returns, we can continue with that strategy. We'll keep it quite flexible. That is important. That is why we have not actually announced a formal program, because we would like to keep it flexible and only do buybacks as and when we have surplus capital and we do not see immediate opportunity for capital deployment.
Okay.
Are you able to share in terms of the approvals that you have to buy up to the absolute amount that you can buy, or the percentage of your share capital that you can buy up to that? Can you share that or you cannot share?
Y eah. We need approval, obviously, of the board, but also from the provincial authority. As a matter of routine, we do request those approvals to give us extra flexibility. I do not think it is important for me to share the absolute quantum because that just gives us a headroom. It is certainly not an indication of how much we would want to buy back. We just get those approvals with some headroom built in, and then we execute them depending on our capital position.
Thank you.
Maybe I also just want to emphasize one more thing.
Further buybacks for the rest of the year are less likely because we are seeing growth opportunities.
Okay. Great. Maybe there are no more hands. We can go back to the chat. There was an additional, just going back to the buybacks, we can close this item out. There was an additional question around the anticipated impact of the buybacks on headline earnings per share. It's relatively small. I don't know if you want to add to that, Arno.
Yeah. I think I mentioned a bit of a tailwind between 1% and 2%. You can easily work that out. That's what it would give once the buybacks are in the base. Yeah. So an additional 1%-2% HEPS growth, of course.
Then we've got some questions from Charles. I'll go through them one by one. How did the capital raise go in Nigeria?
Was there an opportunity to increase your stake? Any other opportunities to increase stakes in Angola and Kenya? Maybe you want to comment on those two.
Yeah. The capital raise went fine. Put our additional capital in. Also, importantly, just recently, I think one or two weeks ago, the Central Bank of Nigeria completed the capital verification process. So this capital can qualify now as equity. All of the banks had to go through the capital verification process. So that's all done. We did not increase our stake. So the rights issue was taken up by all of the shareholders. We like to buy more in Angola. You know about that. And we think that's an attractive proposition. Regrettably, it's taken quite a bit of time with the Angolan authorities to get that done.
We are still working through the IPO of our Angolan entity and getting our shareholding to 75% with the Angolan authorities. There have been no material changes in Kenya's stake shareholding as well.
Okay. The next question is, how do you assess the risk of the recent CBN announcement and the potential halting of dividends in Nigeria?
That only applies to certain banks and not to IBTC, Aju, or Bank. It does not apply to us.
The next one is around FX headwinds. What gives you the confidence that FX headwinds will be lower in the second half?
Yeah. I mean, the big devaluations were Nigeria, Naira, and Angola and Kwanza at the beginning of 2024. That is now sort of being worked into the base.
We've also seen fairly strong currencies in the Kenyan shilling, Ugandan shilling, and I'm sure you would have noticed the Ghanaian cedi, very strong performance in May, I think, of 30% depreciation. That should allow our headwinds. We've seen some depreciation year on year in the Nigerian naira, Angolan kwanza, and Tanzanian shilling that's still from the large devaluations we had last year. Remember, at the beginning of last year, when we reported March, we had a 9% difference between ZAR and constant currency growth. I think it was 9% ZAR. You can see now already it's much less than that. The trend will continue. I spoke about mid-single digit earnings growth in constant currency and around 10% in rand. There you can see the gap is much less than 9% now.
The last question from Charles is, can you comment on the impact of global geopolitics on provisioning levels now versus in December?
Yeah. Charles, it's what I said earlier on. I'm sure you heard me say we sort of have done some adjustments on forward-looking outlooks per macroeconomic scenarios. We have to do this as part of the IFRS 9 modeling that's in our base now. The heightened geopolitical uncertainty is fading to a pin out through that mechanism.
Those are Charles. Hopefully, those answer your questions, Charles. We have a question from Kumbelo. Could you please provide more detail on where you're seeing an increased client base, specifically by segment and by region? I would say it's really quite broadly based. We will certainly provide more detail at results with regards to client numbers. I don't know if you want to add to that, Arno.
Yeah.
We focus also on private banking clients, and we continue to grow our client base for private banking. Across the segments in small enterprises, CRV, everywhere else, we are growing our client base.
Okay. Great. I can see we have a hand. If we can unmute the line, is it an old hand?
Yeah. In the sense, I think you made mention of increased competition you are seeing within the mortgages space. Are you able just to call out whether you are seeing which players you are seeing more active in the space and just in terms of the dynamics you are seeing in that segment?
Okay. I wonder if I can ask Sayuri, who is the head of the retail business CFO, to come on screen and then just comment on that, please. Sayuri, thank you.
Thanks, Arno. Thank you for the question.
Yes, we are seeing more pressure come through and continued pricing pressure, actually, in the mortgage space. That is across many of our competitors. We are seeing that due to the high levels of ROE in the home services business, that is attracting many of our competitors. Both competitors who are already in the space as well as some of the new players as well. We are seeing competition across the board, really, in that space coming through. You will recall just in that home services space, we did during the COVID period where we were the home services providers who stayed in the market. We do have a lot of their portfolio, which remains with us now, but at higher margins, actually.
As we see the competition come in, some of that new business is coming through at low margins because of the pricing pressure with much more competition included there as well. Thanks, Arno.
Thank you.
Yeah. You have not really because Discovery has been active in that space, and I think Capitec is also more active. You have not seen you cannot say that you have seen them more than the other players. It is across the board or?
We are definitely seeing them. We are seeing Discovery, Capitec. We are seeing some of the other banks as well. It is across the board in general as well.
Yeah. Thank you.
Thank you.
Okay. Great. I cannot see any more hands, and I think we have answered all the questions on the chat. Arno, would you like to make any closing comments?
Yeah. Thanks, everyone, for dialing in.
We will release interim results on the 14th of August. Of course, I look very much forward to engaging with you then and really unpacking the performance in detail. I think that's all for this afternoon then, and I wish you a good Thursday evening.