The fact that Standard Bank was able to announce that its profit recovered to R13.3 billion in the six months to June 2021, compared to just R4.1 billion in the first half of the previous financial year, is a testament to that things are looking up. Further proof is that a large part of the recovery can be attributed to a strong and welcome income in impairment charges.
Bad debt charges decreased from R11.3 billion in the same six months a year ago, when lockdowns were preventing people from working and unable to meet their commitments, to less than R6 billion.
Summary of interim results
|Six months to June (Rm)||2021||2020||% change||12 months until December 2020|
|Income||64 815||61517||5.4%||123 667|
|Net Interest Income||29 968||31 204||-4.0%||61425|
|Income other than interest||24 485||24 580||-0.4%||47 156|
|Credit impairment charges||5 797||11 291||-49%||20 594|
|Profits||13 321||4 122||223%||14 513|
|Title EPS||R 7.21||R 4.74||52%||R 10.03|
|DPS||3.60 R||0c||-%||2.40 R|
|Share price||135.82 R|
|12 months maximum||145.35 R|
|12 month minimum||99.02 R|
Source: Interim results from Standard Bank and market data from JSE
Standard Bank CEO Sim Tshabalala notes that the first six months of 2021 were still an exceptionally difficult period for many of the group’s clients, staff and stakeholders, but that everyone is hopeful that the worst phase the pandemic has been left behind.
“Despite these ongoing tensions, some early signs of recovery are evident in Standard Bank’s financial results for the first half of 2021. Our underlying business has strong momentum and, relative to this time last year, we have seen a recovery in customer activity, an improved outlook and lower impairment charges, ”says Tshabalala.
Management mentions that the group’s SA business recorded a strong recovery, particularly in the consumer and high net worth customer segment.
The wholesale customer segment posted strong earnings growth driven by net credit recoveries and tight cost controls.
The recovery in client transactional activity, higher fee income and significantly lower credit charges offset the effects of lower interest rates during the period relative to the prior year. However, Tshabalala notes that credit impairment charges remained above normal levels (when compared to the first half of 2019).
Overall earnings recovered to R10.9 billion, an increase of 41% compared to the first six months of 2020. It resulted in a large recovery in return on equity.
In addition, Liberty became profitable again and other interests continued to perform well. As a result, the group’s overall earnings recovered to R11.5 billion, an increase of 52% compared to the first six months of the previous year. This led to a large recovery in return on equity, which improved to 12.9% after falling to 8.5% during the extremely difficult comparable period.
The good results paved the way for the declaration of an interim dividend, and also a fairly decent one.
The group paid half of its earnings with the interim R3.60 covered almost double by earnings per share.
Not only did profitability rebound, the share price also saw a recovery from its 50% drop in early 2020, after falling from around R166 to just R84 when the world was in the midst of an unknown virus and banks South Africa agreed to suspend dividends in exchange for Reserve Bank support, has comfortably recovered above R135.
It is notable that different analyst consensus views, aggregated by different investment platforms, rate Standard Bank as a buy. The 10.6x price / earnings ratio, based on the latest results, suggests investors are confident the recovery will continue.