Johannesburg - The country's biggest banking group in terms of assets, Standard Bank, on Thursday reported that for
the four month period to April 30 2009, normalised headline earnings contributed by banking activities were down 6%.
After consolidating a net loss from Liberty Holdings, group normalised headline earnings amounted to R4.1bn reflecting a reduction of 14%, and group normalised headline earnings per share were 18% lower, CEO Jacko Maree told the group's AGM.
He said the dilution in normalised headline earnings per share is largely as a result of the shares issued to the Industrial and Commercial Bank of China on March 3 2008 being included for the full current reporting period.
The latter - now the world's largest bank - owns a 20% stake in the South African bank.
"A 72% increase in impairments off the relatively low base for the first four months of 2008 is the principal reason for the 6% reduction in headline earnings from banking activities. The recent reductions in interest rates have not impacted significantly on credit impairments although there was some slowing of the growth rate in non-performing loans in April 2009," Maree said.
Maree pointed out that, at the time of releasing the group's 2008 results on March 5 2009, Standard Bank had cautioned that it expected the extremely difficult operating conditions to continue, posing significant challenges for its customers and its industry.
"Since then, slowing economic growth has resulted in an even tougher operating environment than anticipated and consequently our focus remains on prudent risk management and preservation of liquidity and capital," he added.
Net interest margins remained relatively stable for the first three months of the year, however some net interest margin compression manifested itself in April 2009 as a result of the recent interest rate reductions.
"Non-interest revenue is performing in line with expectations and reflects an improvement over the comparative period.
"Operating costs continue to be tightly controlled and the cost-to- income ratio for the first four months remained below 50%," Maree said.
With respect to the major business units, personal & business banking headline earnings to April 2009 were down 18% and corporate & investment banking headline earnings were up 4% - after recognising significant increases in credit impairments in both business units.
Maree referred shareholders to the Liberty Holdings market update on May 15 2009 wherein, referring to the first quarter of 2009, it was stated: "Although operations continue to deliver earnings in line with expectations, the operational earnings have been exceeded by the impact of balance sheet management activities.
"The unrealised market risk loss consists of interest rate and equity mark-to-market losses of an estimated R250m and R500m respectively. This unrealised market risk loss was offset by an estimated R350m of operating earnings from subsidiaries, resulting in an overall loss of approximately R400m for
the quarter.
"Although the challenging economic environment experienced
in the first quarter of 2009 is expected to continue for the remainder of the year, the group is expected to return to profitability for the full year."
Standard Bank effectively consolidates 53.7% of these losses through its shareholding in Liberty Holdings, Maree pointed out.
He added that at March 31 2009 the group had a total capital adequacy ratio of 12.7% and a tier 1 capital adequacy ratio of 10.8%, comfortably exceeding minimum regulatory requirements and the group's target ratios.
- I-Net Bridge