Johannesburg - Standard Bank has come out as the clear favourite among South Africa's big four retail banks after the release of their respective results for the year to end-December 2008.
"Without a doubt, the result that Standard bank delivered was head and shoulders above the others," Neville Chester, a portfolio manager at Coronation Fund Managers, told Fin24.com.
Bad debts have been at the top of most investors' minds as problems in UK and US banks unravel, and four very distinct stories have emerged from South Africa's large retail banks.
Absa: South Africa's largest retail bank reported a 7.3% increase in headline earnings per share to 1 412c per share and a 6.3% increase in dividend to 595c. The bank places great emphasis on the fact that one in three South Africans now banks with Absa, which would present many cross-selling opportunities for the group's products.
Nedbank: A beacon of light in the Old Mutual stable, Nedbank was able to produce a 2% decline in headline earnings to 1 401c per share and a 6% decrease in dividend to 620c per share. The performance was enough to encourage parent Old Mutual to say it would be looking to increase its stake in the bank.
Standard Bank: "Big blue" reported a 1% decline in headline earnings to 942c and left its dividend unchanged at 386c per share. The bank was praised for its performance in tough local and international markets.
FirstRand: Problems in its equity trading divisions and asset finance businesses weighed on the group. The company reported a 25% decline in headline earnings per share to 81.2c, and a drop in dividend of 23% to 34c per share.
Sasha Naryshkine of asset management firm Vestact said that while African Bank (Abil) remained his preferred pick for the sector, if he had to choose between the four he would pick Standard Bank. He said: "Standard Bank had that capital injection [from the International and Commercial Bank of China] at the right time, with the benefit of hindsight."
Chester added: "Given the risks that Standard Bank faced given its global exposure, the fact that they still delivered the second-best earnings growth with a huge layer of conservatism was an excellent achievement."
Sean Riskowitz of value investment firm Manhattan Financial provided an alternative view, saying: "I think the question at the moment is not which bank will outperform the others, but more likely which bank is the cheapest given current market valuations.
"In my mind I don't think someone who buys Standard Bank over FirstRand at current prices, for example, is going to do significantly better over the next three to five years."
Riskowitz said he had been "expecting more" from the Nedbank results and that investment banking division Absa Capital had boosted the performance of Absa. Of Standard Bank he said: "I thought Standard Bank produced the best numbers over the six months to December, despite the fact that current shareholders were diluted due to the Chinese deal."
South African lenders have taken much criticism for the extension of easy credit before the introduction of the National Credit Act (NCA) in 2007; banks are now being forced to write down the risk associated with these portfolios.
Chester said: "The defining decisions that will drive the outperforming bank for the next few years is how well it makes balanced decisions to grow its lending book now that margins are better, property prices more realistic and the LTVs [loans to value] are more sensible, providing better security going forward.
"I can guarantee that a loan portfolio advanced today, on the current risk metrics, will perform significantly better than the portfolio put onto the banking balance sheets in 2006."
* The writer holds preference and ordinary shares in Standard Bank.
- Fin24.com