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- Investec's profits are now significantly ahead of pre-pandemic levels.
- The financial resilience of the group's customer base also sent its credit loss ratio to historical lows as customers continue to service their debts well.
- The group hopes that its clients' resilience will help it navigate the rising inflation environment better than other banks.
After its customers bounced back quicker than the average, helping Investec grow its profits much higher than pre-pandemic levels, the banking group is walking into the gloomy environment of rising global inflation and sombre consumer confidence a bit more self-assured than some of its peers.
Investec didn't stay in the solemn Covid-19 mood for very long. Even before the end of 2020, it was signalling that most of its clients had already gotten back on their feet and repaying their loans as they used to.
Presenting the banking group's financial results for the year ended on 31 March, CEO Fani Titi, said this recovery accelerated even faster. Right now, Investec's credit loss ratio is at a historical low of 8 basis points (bps). The South African business's credit loss ratio is almost 0%, something the group has never experienced even before Covid-19.
Clients have been servicing their debts well, reducing Investec's credit impairment charges. But the bank still retained a "fair amount" of Covid-19 provisions it previously raised because SA's economy is still under pressure.
But Investec does expect the credit loss ratio for its South African business to "normalise" to around 25 – 30 bps. It is still much lower than what the company historically told investors to expect. Investec also expects credit ratio in the UK business to normalise at around 30 – 40 bps.
"Both in South Africa and the UK we do not see any evidence of increased impairments as we stand right now," said Investec group financial director, Nishlan Samujh.
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It is this resilience in its customer base that makes Titi hopeful that Investec's narrow focus on the wealthy and high-income earners will shield it again from the effects of supply chain disruptions created by the Russia-Ukraine war.
He said Investec is very aware of the downside risks and how the rising cost of living might send many consumers to a breaking point. He expects the economic environment to be "tough" for the man on the street.
"But for Investec specifically, given our very targeted client base, both on the private client side and the corporate side…we do believe that our clients are likely to navigate this environment much better than the average client in the street," said Titi.
"We have just exited from Covid-19 and both in South Africa and in the UK, our clients recovered much faster than the general client out there," he added.
Surpassing pre-pandemic profits
Investec's adjusted earnings and pre-provision operating profit both rose beyond pre-Covid-19 levels in the year ended on 31 March.
The group's adjusted earnings per share increased 90.7% to 55.1 pence, which was at the top end of what Investec expected. The adjusted operating profit of £716.2 million (~R14.2 billion) was 15.7% higher than what the company achieved in March 2019.
The 9.2% increase in funds under management to £63.8 billion (~R1.27 trillion), 13.2% growth in core loans to ~R593 billion and revenue growth from banking fees as the bank continued to attract new customers all contributed to this profit increase.
The SA business contributed 56% of the group's adjusted operating profit and the UK business added the other 44%.
