Africa’s prospects for sustainable, long-term and inclusive economic growth
Despite the economic headwinds that we experienced during 2015, our financial results demonstrate our franchise’s resilience and ability to continue delivering sustainable shareholder value.
Ted Woods, group remuneration committee chairman
Africa is our home and we are committed to the expansion and deepening of our business across the continent. We work with clients and regulators to support economic growth and diversification, thereby counter-balancing the slow-down in emerging markets and the related decline in commodity prices.
The global economy continues to demonstrate relatively weak economic growth. This has resulted in a slowing of trade, a prolonged decline in commodity prices, and investment outflows from emerging markets. Sub-Saharan Africa economic growth is estimated to have declined to 3.5% in 2015, from 5% in 2014.
This decline has led to speculation that Africa may no longer be as attractive an investment destination, however, Standard Bank is confident in Africa’s long-term economic prospects. Despite a slowing down in some economies, notably Nigeria, South Africa and Angola, many countries, particularly in East Africa, continue to demonstrate impressive growth.
Africa’s rapidly urbanising population and growing middle class, the diversification of African economies into manufacturing and services, large-scale investment in infrastructure and growing inter-regional trade, are driving internal African growth, making the continent less reliant on external markets than it has been in the past. Energy demand is rapidly increasing, and Africa is beginning to establish itself as a renewable-energy hub. The continent is on track to become the second fastest growing region in the world by 2025, with GDP of USD4,5 trillion.
Growing numbers of consumers, small enterprises and large corporations are looking for appropriately tailored financial solutions to meet their needs. SBG’s history and track record on the continent and our on-the-ground presence in 20 countries place us in an excellent position to serve this growing market. We remain deeply committed to operations across the continent, and we expect to continue to see strong growth in our African operations.
Our on-the-ground presence and deep understanding of the local environment, together with clear lines of accountability at country and group level, enable us to responsibly balance risk considerations with growth opportunities. Our extensive risk-modelling processes include assessment of the likely impacts of national and regional macroeconomic trends and forecasts on business activities, and on clients and customers. This informs our risk appetite, and enables us to identify any required mitigating actions to ensure we stay within our risk parameters.
Our management teams are supported by well-defined governance, compliance and risk management frameworks. This ensures that in all our countries of operation, we stay true to our principle of ‘doing the right business, the right way’.
IT systems are impacted by, and facilitate compliance with regulatory changes. With the increasing pace of regulatory changes impacting financial services, a significant amount of IT expenditure is allocated to ensuring compliance with regulatory requirements while also driving business value. An enhanced anti‑money laundering capability was deployed in South Africa in February 2016; the programme was built on the modernised core banking platform. Good progress has been made with our risk and data aggregation and risk reporting programme to meet the Basel Committee of Banking Supervision requirements and with SAP capabilities to deliver against the requirements of IFRS 9 (International Financial Reporting Standard).
As an integral part of the business within the group, IT adheres to the relevant group governance frameworks, standards and policies.
Standard Bank is confident in Africa’s long-term economic prospects.
Standard Bank’s strategic partnership with ICBC gives us a competitive edge in connecting Chinese investors to African opportunities. In December 2015, SBG and ICBC jointly sponsored the Focus on China-Africa Co-operation (FOCAC) summit. SBG hosted briefings for Chinese public and private corporations, highlighting investment opportunities in Africa. As part of the event, SBG and ICBC signed a Memorandum of Understanding (MoU), witnessed by President Zuma and China’s President Xi Jinping, which includes a commitment to jointly support up to 100 new infrastructure and industrial projects across 30 African countries, at an investment of USD80 billion. The event raised SBG’s profile with African governments and Chinese businesses operating in Africa, and further strengthened the SBG-ICBC brand in Africa.
SBG was recently appointed the new chair of the Equator Principles Association from June 2015. This makes us the first African bank to be elected to this position.
The Equator Principles are a set of voluntary guidelines that assist financial institutions to determine, assess and manage the environmental and social impacts of the projects they finance. They apply to activities in respect of project finance and related advisory services, project-related corporate loans, and bridge loans. Members require their potential project to demonstrate that they have in place systems to manage social, environmental and human rights-related impacts, and to consult with affected communities in relation to potential impacts. While the Equator Principles are voluntary, they are legally enforceable against loan recipients when incorporated into loan agreements.
Standard Bank has been an active and engaged member of the Equator Principles Association since its adoption in 2009. The Association is managed by an elected steering committee of 12 global banks, with Standard Bank the only African representative. Debt underwritten through the application of Equator Principles forms a significant component of our investment in Africa. Standard Bank closed nine ✓ Equator Principle projects in 2015, eight of which were projects financed, while the other project was an advisory deal initiated in 2015. The graph below illustrates the number of projects financed by SBG and the relevant category indicating the potential social and environmental risk potential. Additional details about our environmental and social process, as well as a further breakdown of the projects.
The process of realigning SBG’s resource allocation to support our vision to be the leading financial services organisation in, for and across Africa, is largely complete. Despite significant challenges in all markets, SBG performed well and achieved 27% growth in headline earnings to R22 billion (2014: R17 billion).
SBSA grew headline earnings 11% to R13,4 billion, accounting for 60% of group headline earnings. Our operations in ROA achieved 12% growth in headline earnings, to R5,5 billion, contributing 25% of the group’s total headline earnings. The impact of the rapid decline in oil and other commodity prices was mitigated by our CIB businesses’ diversification across a range of other sectors and regions which continue to show growth opportunities. Our PBB franchise in countries outside South Africa remains robust, growing from R104 million to R192 million.
Our capital position remains strong with a total capital adequacy ratio of 15.7%. A total dividend of 674 cents per share was declared, an increase of 13% on the prior year. Our ROE is our most relevant measure of performance over time as it combines all critical drivers. This year we were pleased to enter into our medium-term target of achieving between 15% and 18% ROE, with a 15.3% ROE in 2015. A detailed discussion of our financial performance can be found in our 2015 annual integrated report.
A return on equity of 15.3% was achieved this year, aligned with our medium-term target.
The Development Bank of Namibia (DBN) is a limited company incorporated in Namibia and was established as a public company through an Act of Parliament. The Ministry of Finance is the sole shareholder and seed capital was provided by the Namibian government. DBN’s purpose is to provide finance to private and public sector companies, SMEs and emerging micro enterprises working in infrastructure development. This includes physical infrastructure such as roads, power and water, and social infrastructure such as medical facilities. The objective is to enable businesses to develop and expand, in the process creating new jobs, and supporting the prosperity of communities and individuals.
Standard Bank of Namibia acted as sole lender, providing a loan to the DBN to the value of NAD670 million over a period of 12 months. The funding is lent onward by DBN, to support strategic economic projects in Namibia. The facility is a game changer in terms of the size of the local market.
SBG has developed significant strategic business alliances to partner for development and meet our objective of growing our footprint across the African continent. Initiatives undertaken include:
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