• Home
  • Introduction
    • OUR APPROACH TO INTEGRATED THINKING
    • ABOUT OUR INTEGRATED REPORT
    • OUR REPORTING SUITE
    • WHO WE ARE
    • ADDITIONAL INFORMATION
  • Leadership
    • CHAIRMAN’S STATEMENT
    • GROUP CHIEF EXECUTIVE’S REVIEW
  • Value creation
    • OUR OPERATING CONTEXT
    • OUR MATERIAL ISSUES
    • OUR STRATEGY
    • OUR EXECUTION MODEL
    • OUR STRATEGIC PROGRESS
    • OUR VALUE PROPOSITION
  • Our strategy
    • CLIENT FOCUS
    • EMPLOYEE ENGAGEMENT
    • RISK AND CONDUCT
    • FINANCIAL OUTCOME
    • SEE IMPACT
  • Accountability
    • GOVERNANCE OVERVIEW
    • REMUNERATION OVERVIEW
  • Downloads
  • Financial outcome

    Financial
    outcome

    Delivering sustainable returns to our shareholders depends on the extent to which our investments in satisfied clients, engaged employees and managing risk and conduct are effective and efficient. In turn, we need to ensure that we balance the capital we allocate to these strategic investments with competitive returns.

    MEASURING OUR STRATEGIC PROGRESS

    What success looks like

    We continue to demonstrate value creation for all our stakeholders by delivering headline earnings growth and driving ROE into our 18% to 20% target range.
    We maintain the resilience of our balance sheet to support the execution of our group strategy.

    How we measure our progress

    By delivering positive results on our client focus, employee engagement and risk and conduct value drivers, we seek to improve our financial outcomes, thereby ensuring growth, resilience and returns. We measure our financial outcome through the following indicators.

    Growth
    • Headline earnings: show the profits we make, excluding profits or losses from non-recurring events1. We seek to improve our headline earnings each year by continuing to grow our revenue while managing our costs and risks.
    • Africa Regions headline earnings contribution: measures the percentage contribution from countries outside South Africa to banking headline earnings.
    • Cost-to-income ratio: measures our efficiency in generating revenues relative to the costs we have incurred. Containing our costs is key to growing headline earnings and improving ROE.
    • Jaws: measures total income growth minus total operating expenses growth. We aim to achieve positive jaws to ensure we grow our revenues faster than our costs.
    • Credit loss ratio: measures our impairment charges as a percentage of average loans and advances. We aim to maintain our CLR at an acceptable level in line with our risk appetite.
    Resilience
    • Our resilience is measured by LCR, NSFR and CET 1. More detail can be found in our risk and conduct section.
    Returns
    • Return on equity: shows how much profit we generate with the money shareholders have invested in us. ROE is the result of all the growth and resilience measures and, therefore, the ultimate measure of our effectiveness in executing our group strategy.
    • Dividends: return to shareholders on their investment.
    1 As prescribed by the South African Intsitute of Chartered Accountants (SAICA) circular.
    2 Based on IAS 39 Financial Investment: Recognition and Measurement.
    3 Revised target.

    HOW WE PERFORMED

    Growth


    GROUP HEADLINE EARNINGS

    R28.2bn

    2018: R27.9  billion |
    2017: R26.3  billion
    TARGET: Sustainable growth

    BANKING HEADLINE EARNINGS

    R27.2bn

    2018: R25.8  billion |
    2017: R24.3  billion

    AFRICA REGIONS' CONTRIBUTION TO BANKING HEADLINE EARNINGS

    31%

    2018: 31% | 2017: 28%
    TARGET: >30% contribution

    COST-TO-INCOME

    56.4%

    2018: 57.0% | 2017: 55.5%
    TARGET: Approaching 50%

    JAWS

    113  bps

    2018: (276)  bps | 2017: 100  bps
    TARGET: Positive jaws

    CLR

    68  bps

    2018: 56  bps | 2017: 87  bps2
    TARGET: 70 – 100  bps3

    Returns


    GROUP ROE

    16.8%

    2018: 18.0% | 2017: 17.1%
    TARGET: 18% – 20%

    BANKING ROE

    18.1%

    2018: 18.8% | 2017: 18.9%

    DIVIDEND PER SHARE

    994  cents

    2018: 970  cents | 2017: 910  cents
    TARGET: Sustainable growth

    2019 KEY PRIORITIES

    • Continue to reduce cost growth and increase efficiency by permanently reshaping the group’s cost structure.
    • Accelerate digitisation to meet client needs and enhance competitiveness and efficiency.
    • Pursue growth opportunities.
    • Work with ICBC to find lasting solutions to ICBCS and ICBC Argentina legacy business.
    • Monitor opportunities to issue senior unsecured and/or tier II subordinated debt in the market to optimise the group’s capital and funding position.
    • Remain committed to our medium-term targets of delivering sustainable earnings growth and an ROE in our 18% to 20% target range.
    • Continue to support faster, more inclusive and more sustainable growth and human development in South Africa and across the continent we are proud to call home.

    TRADE OFFS

    To ensure that we can continue to attract the capital we need to fund the growth in our assets, we must provide an appropriate rate of return to our equity shareholders and debt funders, including depositors. This requires that we balance our ability to generate revenue with the costs incurred in doing so.

    PERFORMANCE AGAINST STRATEGY

    We allocate our resources and align our relationships to support the disciplined delivery of our strategy, while continuing to focus on delivering a compelling investment case.

    Achieved in 2019

    • Group headline earnings grew by 1%, or 3% on a constant currency (CCY) basis, supported by the growth and resilience of core operations. The constrained macroeconomic environment, particularly in South Africa, and ICBCS losses impacted our group results.
    • Quality top line growth and continued positive operating leverage contributed to 5% growth in the bank’s headline earnings. Good balance sheet growth underpinned net interest income (NII) while non-interest revenue (NIR) was supported by growth in transaction volumes and trading revenues.
    • Africa Regions’ headline earnings grew 5% (CCY 8%) and contribute 31% to banking headline earnings. Top contributors were Angola, Ghana, Kenya, Mozambique, Nigeria and Uganda.
    • Strong focus on cost containment continued, resulting in below inflation cost growth and positive jaw (as per target) of 113 bps.
    • PBB delivered good results with 6% growth in headline earnings to R16.5 billion. CIB also delivered satisfactory results with 5% growth in headline earnings to R11.8 billion.
    • SBSA produced resilient, high quality headline earnings growth of 4%, supported by strong growth in loans and advances to customers of 6% and NII growth of 4%. Costs were well managed, with below inflation growth of 2%.
    • Liberty earnings attributable to the group was R1.9 billion, up 16% on the prior year.
    • Despite tough operating conditions in Argentina, ICBC Argentina continued its strong performance. In August 2019, the group exercised its option to sell its 20% stake in ICBC Argentina to ICBC. The group ceased recognising profits from the stake from 1 September 2019. Headline earnings from the group’s 20% stake amounted to R583 million for the eight months to 31 August 2019. The sale is subject to Chinese regulatory approvals and we expect to reach completion in 2020.
    • ICBCS recorded a loss of USD248 million, consisting of a single client loss of USD198 million, USD30 million related to restructuring costs and USD20 million of operating losses related to the business operations. The latter was driven by lower revenues on fixed income and currency trading due to subdued market sentiment. The group’s 40% share of the losses equated to R1.4 billion. Further to this, in September 2019, the group recognised a USD163 million impairment of its stake in ICBCS (reducing the carrying value from USD383 million to USD220 million at that date). This equated to a R2.4 billion impairment which is reported outside of headline earnings.
    • The group’s capital position remained strong with a CET 1 ratio of 14.0%.

    Strategy in action

    • Focus on digital has allowed us to reduce inefficiencies and to improve both client and employee experience, as discussed earlier in this report.
    • Value drivers have been further embedded in our business, allowing us to appropriately measure our progress. We continue to refine our metrics for each of the value drivers, and for SEE impact we have commenced tracking our performance on independent ESG indices.
    • Remained resilient despite the challenging macroeconomic conditions in most of our countries of operation, supporting steady growth in our headline earnings and a sturdy balance sheet that complies with Basel III capital and liquidity requirements.
    • Increased longer term funding in excess of 12 months, raising R51.8 billion through a combination of negotiable certificate of deposits, senior debt and syndicated loans. Successfully issued a USD400 million tier 1 Eurobond as well as R1 billion tier II and R1.9 billion additional tier 1 (AT 1) notes during 2019, the proceeds of which were invested in SBSA on the same terms and conditions.
    • Focus on the group’s core business, supporting the decision to exercise our option to sell our stake in ICBC Argentina to ICBC in August 2019.
    • ICBC and the group, as shareholders, have had robust conversations and made meaningful progress with ICBCS management to place the business on a path to sustainable profitability. These discussions resulted in a number of management actions in ICBCS, including significant headcount reductions and a reduction by ICBCS of business lines and locations. Closer integration into and cooperation with the ICBC group is an important element of the plan to achieve sustainable profit.
    • Successfully listed our Namibian subsidiary on the Namibian Stock Exchange.

    MEASURING OUR FINANCIAL OUTCOME

    HEADLINE EARNINGS

    Group headline earnings is one component used in determining the group’s ROE and represents the major lever in lifting the group’s ROE to meet our medium-term target. Headline earnings growth is used as a key reference point in decision-making throughout the group.

    Banking activities' balance sheet drivers

    Growth in deposits and funding, and loans and advances supported the group’s headline earnings growth between 2014 and 2019 by a compound annual growth rate (CAGR) of 10%.

    AVERAGE INTEREST EARNING ASSETS

    +8%

    AVERAGE INTEREST BEARING LIABILITIES

    +9%

    NET INTEREST MARGIN

    -7bps

    Down Arrow
    Plus Icon Arrow Down

    NII grew 6% to R62.9 billion driven by strong loan and deposit growth across the portfolio. Net interest margin (NIM) decreased marginally to 431 bps from 438 bps in 2018. Lower average rates in some of the Africa Regions markets, higher cash reserving costs in Nigeria, and a competitive loan pricing environment in South Africa and Nigeria (following the introduction of the minimum loan-to-deposit ratio) contributed negatively to margin. This was partially offset by stronger growth in higher margin unsecured lending (compared with secured) and in Africa Regions (vs South Africa), and effective margin management in our offshore operations.

    NIR grew 4% to R47.5 billion in 2019. NIR growth was driven by electronic banking fees, card volumes and trading revenue. Regulatory restrictions on fees in Africa Regions and competitive pressure in South Africa weighed on account transaction fees. Our new digital products were well-received by our clients. Asset-based fees grew on the back of CIB balance sheet growth. Knowledge-based fee growth was muted. Increased volatility in the second half of in 2019 aided revenues from fixed income, currency and equity trading.

    Minus Icon Arrow Down

    Credit impairment charges increased 23% off a low base in the prior year. The group CLR increased to 68 bps from 56 bps in 2018, just below the group’s through-the-cycle CLR range of 70 – 100 bps. Higher year-on-year post write-off recoveries in card had a favourable impact on impairment charges.

    Arrow Down Minus Icon
    Minus Icon Arrow Down

    Cost growth was well contained, resulting in continued positive operating leverage. Costs increased 4% year-on-year and jaws were positive 113 bps. A decline in headcount supported slower growth in staff costs. Other operating expenses increased 6%. IT costs grew 17% reflecting higher software licensing and maintenance costs, an increase in cloud-related costs and an increase in outsourcing. The adoption of IFRS 16 Leases gave rise to an increase in depreciation and decrease in premises costs.

    Equals Icon Arrow Down
    Plus Icon Arrow Down

    Banking headline earnings grew by 5% to R27.2 billion, up from R25.8 million in 2018, supported by increased NII and NIR, offset by higher credit impairment charges. Africa Regions’ headline earnings grew 5% and contributed 31% of the banking headline earnings.

    Plus Icon Arrow Down

    The group’s share of Liberty’s headline earnings increased by 16% to R1.9 billion. Liberty is making progress towards re-building a competitive and sustainable business. While the focus on new business volumes continues, normalised operating earnings improved 10% year on year. In 2019, the shareholder investment portfolio benefitted from improved investment market returns, particularly in respect of foreign and local equities.

    Plus Icon Arrow Down
    Equals Icon Arrow Down

    Headline earnings from the group’s 20% stake in ICBC Argentina amounted to R583 million for the eight months to 31 August 2019. In September 2019, the group exercised its option to sell the stake and ceased recognising ICBC Argentina earnings thereafter. ICBCS recorded a loss of USD248 million; the group’s 40% share thereof equated to R1.4 billion.

    Group headline earnings grew 1% to R28.2 billion, up from R27.8 billion in 2018, supporting a 2% growth in dividends per share and the dividend pay-out ratio increased to 56.3% (2018: 55.5%).

    RETURN ON EQUITY

    Our ROE is the most relevant measure of our financial performance over time as it combines all of our critical drivers, including earnings growth and capital utilisation, into a single metric. Internally we measure our RoRWA as a more direct measure of earnings relative to regulatory capital utilisation.

    Divide Icon Arrow Down
    Divide Icon Arrow Down

    Group average RWA increased by 9.6% in 2019 to R1 012 billion, up from R923 billion in 2018, mainly from an increase in loans and advances, some sovereign ratings downgrades and rand depreciation of 9% on average against the USD. Average RWA increased for both PBB and CIB, by 3.3% and 14.4% respectively.

    Divide Icon Arrow Down
    Equals Icon Arrow Down

    The group’s average shareholders’ equity increased by 8% from 2018. During 2019, ordinary shareholders’ equity increased by 4% from the prior year, as a result of higher retained earnings, which was partly offset by dividends paid of R16 billion.

    Equals Icon Arrow Down

    The group’s average RoRWA decreased to 2.8% (2018: 3.0%), driven by the lower headline earnings growth of 1%, when compared to growth in average RWA of 9.6%.

    Multiply Icon Arrow Down

    The group’s financial leverage is the ratio of RWA to shareholders’ equity. For 2019, the group’s financial leverage was 6 times, consistent with 2018.

    Equals Icon Arrow Down
    Arrow Down Equals Icon

    In 2019, the group’s ROE decreased to 16.8%, falling below the lower end of the group’s medium-term target range. This result was mainly due to the challenging operating environment across many of our countries of operation and the loss from ICBCS.

    Read more about the group’s cost of equity in the risk and capital management report

    Down Arrow
    Divide Icon Arrow Down
    Divide Icon Arrow Down

    The group’s average shareholders’ equity increased by 8% from 2018. During 2019, ordinary shareholders’ equity increased by 4% from the prior year, as a result of higher retained earnings, which was partly offset by dividends paid of R16 billion.

    Equals Icon Arrow Down

    In 2019, the group’s ROE decreased to 16.8%, falling below the lower end of the group’s medium-term target range. This result was mainly due to the challenging operating environment across many of our countries of operation and the loss from ICBCS.

    Read more about the group’s cost of equity in the risk and capital management report

    Our resilient performance

    The income statement below reflects the revenue generated and costs incurred by our banking activities, with material income statement line items explained. A detailed analysis on the group’s financial performance, and the principal headline earnings drivers for growth in our ROE, is shown above.

    GROUP INCOME STATEMENT

    for the year ended 31 December 2019

             
      Change
    %
      2019
    Rm
      20181
    Rm
     
    1
    Net interest income
    6   62  919   59  505  
    2
    Non-interest revenue
    4   47  542   45  826  
    Net fee and commission revenue 1   30  622   30  375  
    Trading revenue 12   12  075   10 799  
    Other revenue 6   4  089   3  863  
    Other gains and losses on financial instruments (4)   756   789  
    Total income 5   110  461   105  331  
    3
    Credit impairment charges
    23   (7  964)   (6  489)  
    Income before operating expenses 4   102  497   98  842  
    4
    Operating expenses
    4   (62  335)   (60  084)  
    Staff costs 2   (34  554)   (33  773)  
    Other operating expenses* 6   (27  781)   (26  311)  
    Net income before non-trading and capital related items 4   40  162   38  758  
    5
    Non-trading and capital related items
    (61)   (151)   (392)  
    Net income before equity accounted earnings 4   40  011   38  366  
    Share of profit from associates and joint ventures (23)   333   431  
    Profit before taxation 4   40  344   38  797  
    6
    Direct and indirect taxation
    1   (9  894)   (9  846)  
    Profit for the year 5   30  450   28  951  
    Attributable to other equity instrument holders 18   (873)   (738)  
    7
    Attributable to non-controlling interests
    (14)   (2  528)   (2  639)  
    Attributable to ordinary shareholders – banking activities 6   27  049   25  574  
    Headline adjustable items – banking activities 39   167   273  
    Headline earnings – banking activities 5   27  216   25  847  
    Headline earnings – other banking interests (>100)   (864)   418  
    Headline earnings – Liberty 16   1  855   1  600  
    Standard Bank Group headline earnings 1   28  207   27  865  
    * The group, has adopted IFRS 16 Leases with effect from 1 January 2019. As permitted by the standard, the prior year has not been restated and has been presented in accordance with the previous standard IAS 17 Leases resulting in comparability not being achieved for the affected line item.
    1 Restated.
    For further detail on the group results, including financial definitions, please refer to the Standard Bank Group analysis of financial results 2019

    1
    Net interest income
    What it is: the interest received on lending products that we offer to our clients and investment in debt instruments, less the interest paid on the deposits that our clients place with us and debt funding sourced from other lenders, including subordinated debt.
    Drivers: number of clients, product offerings and pricing, level of economic and client activity, foreign exchange, pricing in commodities and equity capital markets, competition, and market volatility.

    2
    Non-interest revenue
    What it is: comprises net fee and commission revenue, trading revenue and other revenue.
    Drivers: number of clients, transactional banking volumes and pricing, capital market activity, trading volumes and market volatility, property-related revenue, and income from bancassurance and unlisted investments.

    3
    Credit impairment charges
    What it is: losses incurred due to the inability of our clients to repay their debt obligations.
    Drivers: probability of our clients defaulting, and the loss given default, business confidence, and levels of debt-to-disposable income.

    4
    Operating expenses
    What it is: costs that are incurred to generate future and current revenues.
    Drivers: inflation, headcount, investments in branch and IT infrastructure which result in amortisation, general costs to operate (including those related to innovation and work efficiency programmes), and operational losses, including fraud losses.

    5
    Non-trading and capital related items
    What it is: items typically excluded from headline earnings, for example, gains and losses on the disposal of businesses and property and equipment, impairment of goodwill and intangible assets.
    Drivers: obsolescence and asset replacement operational performance and changes in market prices, which may result in impairment on goodwill and intangible assets, and corporate activity resulting in disposal-related gains.

    6
    Direct and indirect taxation
    What it is: includes both direct income taxes (and related deferred tax in terms of IFRS) and indirect taxes, including withholding tax and value-added tax.
    Drivers: corporate tax rates in the geographies in which the group operates, level of profitability of our operations, interest income from certain bonds and treasury bills, dividends on investments that are exempt, and costs that are not tax deductible.

    7
    Attributable to non-controlling interests
    What it is: portion of profit generated which is attributable to minority shareholders in entities in which we own less than a 100% interest.
    Drivers: level of profitability of our operations, and other shareholders’ interest in our subsidiaries.

    Our robust balance sheet

    The balance sheet or statement of financial position shows the position of the group’s assets, liabilities and equity at 31 December 2019, and reflects what the group owns, owes and the equity attributable to shareholders. Material line items have been disclosed below.

    BALANCE SHEET

    as at 31 December 2019

             
      Change
    %
      2019
    Rm
      2018
    Rm
     
    Assets            
    Cash and balances with central banks (12)   75  288   85  145  
    1
    Derivative and trading assets
    27   287  234   226  756  
    Pledged assets >100   17  800   7  218  
    Financial investments (1)   204 703   206 501  
    Disposal group assets classified as held for sale 100   819      
    2
    Loans and advances
    5   1  181  067   1  119  547  
    Other assets 48   25  919   17  531  
    Interest in associates and joint ventures 18   2  502   2  122  
    Property, equipment and right of use asset* 19   19  608   16  509  
    3
    Goodwill and other intangible assets
    (6)   21  712   23  006  
    Total assets – banking activities 8   1  836  652   1  704  335  
    Total assets – other banking interests (51)   3  841   7  852  
    Total assets – Liberty** 5   435 096   414 775  
    Standard Bank Group – total assets 7   2  275  589   2  126  962  
    Equity and liabilities            
    Equity
    Equity attributable to ordinary shareholders

    6
     
    155  664
     
    146  360
     
    4
    Preference share capital and premium and AT1 capital
    21   10  989   9  047  
    Equity attributable to non-controlling interests 23   9  868   8  022  
    Total equity – banking activities 8   176  521   163  429  
    Total equity – other banking interests (51)   3  841   7  852  
    Total equity – Liberty** 5   29  122   27  782  
    5
    Standard Bank Group – total equity
    5   209  484   199  063  
    Liabilities            
    1
    Derivative and trading liabilities
    34   148  441   110  853  
    6
    Deposits and debt funding
    5   1  446  080   1  371  919  
    Deposits from banks 4   121  119   116  727  
    Deposits and current accounts from customers 6   1  324  961   1  255  192  
    6
    Subordinated debt
    12   23  319   20  819  
    Provisions and other liabilities 14   42  291   37  316  
    Total liabilities - banking activities 8   1  660  131   1  540  906  
    Total liabilities - Liberty** 5   405  974   386  993  
    Standard Bank Group - total liabilities 7   2  066  105   1  927  899  
    Total equity and liabilities – banking activities 8   1  836  652   1  704  335  
    Total equity and liabilities – other banking interests (51)   3  841   7  852  
    Total equity and liabilities – Liberty** (5)   435  096   414  775  
    Standard Bank Group – total equity and liabilities 7   2  275  589   2  126  962  
    * The group has adopted IFRS 16 Leases with effect from 1 January 2019. As permitted by the standard, the prior year has not been restated and has been presented in accordance with the previous standard IAS 17 Leases, resulting in comparability not being achieved for the affected line item.
    ** Includes adjustments on consolidation of Liberty into the group.

    The balance sheet presents the group's banking activities separately from the other banking interests and Liberty. It differs to the balance sheet presented in the group's annual financial statements, which is presented on a consolidated basis.

    1
    Derivative and trading assets and liabilities
    What it is: derivative assets and liabilities include transactions with clients for their trading requirements and hedges of those client positions with other market positions and hedges of certain group risks. Trading assets and liabilities are held by the group to realise gains from changes in underlying market variables.
    Drivers: number of clients, product offerings, level of economic and client activity in debt, foreign exchange, commodities and equity capital markets, competition, and market volatility.

    2
    Loans and advances
    What it is: includes our lending to banks and our clients.
    Drivers: number of clients, product offerings, competition, level of economic and client activity, repayments and level of credit impairments.

    3
    Goodwill and other intangible assets
    What it is: represents the excess of the purchase price over the fair value of business that we acquire, less impairments, where applicable, and the cost of internally developed IT assets less amortisation and impairments (where applicable).
    Drivers: corporate activity, investment in IT and digital capabilities to better serve our clients.

    4
    AT1 capital issued
    What it is: the group’s Basel III compliant AT1 capital bonds that qualify as tier 1 capital. The capital notes are perpetual, non-cumulative with an issuer call option and contain certain regulatory prescribed write-off features.
    Drivers: regulatory capital requirements, and growth in RWA.

    5
    Standard Bank Group – total equity
    What it is: the total of the group’s ordinary and preference share capital, AT1 capital, foreign currency translation reserve, minority interests and other reserves.
    Drivers: Income statement drivers, changes in foreign exchange rates, and regulatory capital requirements.

    6
    Deposits and debt funding and subordinated debt
    What it is: provides the group with the funding to lend to clients, fulfilling the group’s role in connecting providers of capital with those that require additional capital and thereby contributing to the functioning of the broader financial system.
    Drivers: client demands, transactions and savings.

    MAINTAINING OUR ROBUST BALANCE SHEET

    Loans and advances

    Gross loans and advances to customers grew 6% from the prior year, of which PBB’s advances to customers grew 6% and CIB, 7%. Provisions held against loans and advances declined year-on-year following the write off of certain stage 3 corporate exposures which were provided for in the prior year.

    Within PBB South Africa, the mortgage loan portfolio grew in line with the market. Our new mortgage offering continued to gain traction and represented 66% of the registrations in December 2019. Average monthly mortgage disbursements reached R4.1 billion, 11% higher than 2018. The investment in our retail VAF capability led to a 7% increase in motor disbursements year-on-year and positive retail market share gains. The personal unsecured lending portfolio grew 9% to R44.8 billion, supported by our online origination capability. The business lending portfolio grew 7% year‑on‑year, aligned with the introduction of new product offerings and a refreshed approach to credit limit application.

    PBB Africa Regions’ gross loans to customers grew to R78.0 billion, driven by disbursements into our client ecosystems supported by digital lending. Business lending remains the largest contributor, at roughly a third of the portfolio, followed closely by mortgages, primarily in Namibia, and thereafter personal unsecured lending.

    Robust new business disbursements in retail VAF and personal unsecured lending led to higher stage 1 and 2 provisions relative to December 2018, partially offset by model enhancements in mortgages and early arrears collection capability improvements in the card and personal unsecured businesses. The stage 3 exposure ratio reflects a moderate increase year‑on‑year, primarily related to protracted legal processes in mortgages. The PBB stage 3 coverage remained largely aligned with 2018 levels.

    In CIB, gross loans and advances to customers grew 7%, underpinned by growth in exposures to clients in the industrial, oil and gas, sovereign & public sector and power & infrastructure sectors. Underlying growth in CIB gross loans and advances to customers, including high quality liquid assets, was 8%. In the South Africa portfolio, a deterioration of risk grades resulted in an increase in stage 1 and 2 provisions, while work-outs led to a decline in stage 3 provisions and a decline in stage 3 coverage ratio. In Africa Regions, provisions were raised for certain guarantees and working capital facilities in the South & Central and East Regions. The main sectors impacted were consumer, power & infrastructure and mining & metals.

    Composition of loans to customers
    Composition of gross deposits to customers
    Funding and liquidity

    During 2019, the group successfully raised R52 billion of longer-term funding. The group also issued a USD400 million tier II Eurobond, R1.0 billion tier II capital and R1.9 billion AT1 notes, the proceeds of which were invested in SBSA. All tier I and tier II instruments were Basel III compliant.

    Deposits from customers grew 6% year-on-year to R1.3 trillion. CIB’s deposits grew 7% driven by client wins and greater share of wallet in South Africa and a growing franchise in Africa Regions. PBB customer deposits grew 4%, with stronger growth in savings and investment products as customers switched to higher yielding products. Growth in PBB Africa Regions’ deposits from customers was underpinned by continued strong current and savings account inflows. Our offshore operations in the Isle of Man and Jersey continued to provide the group with access to hard currency funding, totalling GBP5.2 billion as at 31 December 2019.

    Capital management

    The group maintained strong capital adequacy ratios, with an IFRS 9 phased-in CET 1 ratio of 14.0% (2018: 13.5%) and a total capital adequacy ratio of 16.7% (2018: 16.0%). The CET 1 ratio, including the full IFRS 9 transitional impact, was 13.8%.

    The group’s liquidity position remained strong and within approved risk appetite and tolerance limits. The group’s fourth quarter average Basel III LCR amounted to 138%, exceeding the minimum phased-in regulatory requirement of 100%. The group maintained its NSFR in excess of the 100% regulatory requirement.

    Capital Adequacy

    INSIGHT ON CREDIT LOSS RATIO

    IFRS 9's expected credit loss (ECL) model requires the measurement of ECL using a three stage model as follows:

    ON AND OFF-BALANCE SHEET EXPOSURES

    Arrow Right

    ECL model

    IFRS 9 – EXPECTED LOSS APPROACH

    STAGE ONE
    Arrow Down

    12 month ECL, being the lifetime ECL that is expected to result from default events in the next 12 months

    Arrow Down

    No significant deterioration in credit risk since origination OR low credit risk at the reporting date

    STAGE TWO / STAGE THREE
    Arrow Down
    STAGE THREE
    Arrow Down

    Lifetime ECL being the ECL that results from all possible default events over the expected life of the financial asset

    Arrow Down

    Significant deterioration in credit risk (SICR) since origination

    Credit impaired – incurred loss (default event) similar to that of IAS 39

    CLR is used by the group as a mechanism to monitor the level of credit impairments and credit risk. CLR is calculated as the total income statement impairment charges on loans and advances, as a percentage of average daily and monthly gross loans and advances.

    The group and business lines, following the implementation of IFRS 9, have determined updated CLR target bands as follows:

      Guidance range
    Group 70 – 100 bps
    PBB 90 – 120 bps
    CIB 40 – 60 bps

    The level of credit impairments is monitored against these guidance bands. While overall CLR measured over an extended duration will remain unchanged as a result of the adoption of IFRS 9 as the future cash credit losses do not change, it is anticipated that the following factors will, under IFRS 9, result in greater volatility of the impairment charge in the income statement:

    • Larger credit impairments will arise on loan origination (as a result of the 12-month minimum ECL requirement), following an increase in credit risk (as a result of IFRS 9’s significant increase in credit risk requirement) and following the expectation of deteriorating economic conditions (IFRS 9’s requirement to include forward looking economic expectations). IFRS 9 will thus result in higher credit impairments following book growth, a deterioration of credit quality or worsening economic expectations.
    • The abovementioned increase would however be offset in part, when compared to IAS 39, since on transition to IFRS 9 higher impairments are recognised with respect to loans for which there has been SICR, but under IAS 39 would have been recognised later following the loan entering an early arrears status or defaulting.

    CLR for the past six years have been depicted in the diagrams below:

    pbb-and-cib
    credit-impairment charges
    Forward looking economic expectations

    IFRS 9’s ECL model requires the inclusion of forward looking economic expectations in determining the amount of ECL to recognise. Forward looking economic expectations include macroeconomic information as well as other information that is specific to the exposures that could affect future changes in the credit risk associated with the exposures.

    Details on forward looking information considered by the group, which includes: South African economic expectations and the main macroeconomic factors are some of the essentials which are considered, have been detailed in our group annual financial statements .

    More detail on how we manage credit risk is available online .

    RESPONDING TO ECONOMIC CONDITIONS

    The local currency results and economic conditions of the countries that are most material to the group’s results are provided below. These economic conditions have a significant impact on the results of each of the operations, and therefore on the group’s results.

    South Africa

    South Africa Operations results:

    Despite the persistent weak performance of the South African economy over the year, as well as increasing competition, SBSA delivered R16.6 billion headline earnings, an increase of 4% from the prior year.

    Currency impact: The rand depreciated by 3% against the US dollar in 2018.

    GDP result: GDP growth 0.2% in 2019 (2018: 0.8%).

    Ghana

    Ghana Operations results:

    Headline earnings increased by 24.1% (CCY) from the prior year. This was supported by an increase in net interest income and non-interest revenue, due to growth in loans and financial investments, and higher transactional volumes.

    Currency impact: The cedi weakened by 16.3% against the US dollar.

    GDP result: GDP growth estimated to be 7.5% (2018: 6.3%).

    Nigeria

    Nigeria Operations results:

    Headline earnings improved by 10.9% (CCY), including the full year impact of the increase in shareholding during 2018. Improved foreign exchange trading volumes resulted in higher trading revenue.

    Currency impact: The naira strengthened by 0.08% against the US dollar.

    GDP result: GDP growth estimated to be 2.3% (2018: 1.9%).

    Angola

    Angola Operations results:

    Modest headline earnings growth of 2.8% (CCY) despite the economic recession and the non-recurrence of prior year impairment reversals. Costs were well-managed given currency devaluation, high levels of inflation and implementation of the Deposit Guarantee Fund insurance.

    Currency impact: The kwanza depreciated by 56.4% against the US dollar.

    GDP result: GDP contraction estimated to be -0.3% (2018: -1.2%).

    Namibia

    Namibia Operations results:

    Headline earnings grew by 8.2% (CCY), supported by investment banking fee growth and prudent cost management. This was partly offset by higher impairments from the challenging economic environment. Namibia successfully listed on the Namibia Stock Exchange on 15 November 2019, reducing the group’s shareholding from 100% to 84.5%.

    Currency impact: The Namibian dollar, aligned to the South African rand, strengthened by 2.1 % against the US dollar.

    GDP result: GDP growth estimated to be -0.2% (2018: -0.1%).

    Uganda

    Uganda Operations results:

    Solid headline earnings growth of 19.8% (CCY), resulting from higher net interest income from higher customer balances and yields. This was partially offset by an increase in impairment provisions aligned to balance sheet growth.

    Currency impact: The Ugandan shilling strengthened by 1.1% against the US dollar.

    GDP result: GDP growth estimated to be 6.2% (2018: 6.1%).

    Kenya

    Kenya Operations results:

    Headline earnings improved by 18.9% (CCY), including the effect of the increase in shareholding during 2018. Contributing to this result was strong growth in client revenues which was partially offset by an operational loss on a trade contingency, a voluntary early retirement programme and impairments to isolated client balances.

    Currency impact: The Kenyan shilling strengthened 0.59% against the US dollar.

    GDP result: GDP growth estimated to be 5.6% (2018: 6.3%).

    Mozambique

    Operations results:

    Headline earnings decreased by 11.2% (CCY), mainly due to lower interest earned following the impact of the interest rate cuts in 2018 and 2019, and investment in IT infrastructure and new branches increased costs. This was partially offset by higher NIR from advisory, commitment and structuring fees.

    Currency impact: The metical remained at 61.5 against the US dollar.

    GDP result: GDP growth estimated to be 1.8% (2018: 3.3%).

    References:
    South Africa GDP data: Stats SA.
    Other GDP data: IMF – World Economic Outlook projections, October 2019 and update January 2020.

    LOOKING AHEAD

    Global economic growth is expected to remain slow and downside risks persist. These risks include, among others, the impact of the COVID-19 outbreak, a rise in geopolitical and social unrest, and further weather-related disasters. In contrast, subdued inflation and accommodative monetary policy should support financial conditions and, in turn, emerging market flows. Continued strong growth in East Africa and an ongoing moderate recovery in West Africa should favour sub-Saharan Africa’s economic growth prospects. Conditions are expected to remain difficult in Malawi, Zambia and Zimbabwe. While the impact of COVID-19 on global growth remains unknown, it is clear that a China slowdown and a disruption of Africa- China trade will negatively impact the trade balances of sub-Saharan African commodity exporters and be inflationary for importers. In South Africa, while there were some positive governance and growth-related developments in 2019, there is still much more to be done. The constraints to growth and productivity are structural and the reforms required are well understood. In the absence of tangible progress, we foresee sustained economic weakness, driven by insufficient electricity supply and low confidence. Demand, and in turn inflation, is likely to remain low. Real GDP growth is currently expected to be 0.4% and 1.2% in 2020 and 2021 respectively, but a severe COVID-19 scenario would reduce growth substantially. Stakeholders will be kept informed of the impact of COVID-19 on our progress.

    The macroeconomic outlook in the countries in which we operate is uncertain and the operating environment is expected to remain challenging. Trading conditions are expected to remain difficult, regulatory-imposed constraints and technological change are set to stay, and competition will continue to intensify. Our top priority in 2020 is to increase our competitiveness by improving client experience through the seamless delivery of relevant and personalised financial solutions to our clients, in a secure manner, via their channel of choice. We will also continue to exercise tight cost discipline and seek to allocate resources efficiently and in support of our strategy to build a future-ready Standard Bank Group.

    Over the medium term, we remain committed to delivering sustainable earnings growth and an ROE in our 18% to 20% target range.

     
    Medium-term targets
    Growth
    Group headline earnings growth
    Sustainable growth
    Cost-to-income ratio
    Approaching 50%
    Credit loss ratio
    70 – 100 bps
    Africa Regions' contribution*
    >30%
    Resilience
    LCR and NSFR
    >100%
    CET 1 ratio**
    11.0% – 12.5%
    Returns
    ROE
    18.0% – 20.0%
    Dividend
    Sustainable growth
    * Contribution to banking headline earnings.
    ** Capital adequacy ratios based on the South African Reserve Bank (SARB) IFRS 9 phased-in approach.