Banking group Standard Bank has reported a 5% jump in revenue to R110.5 billion for the full year ended December 2019, aided by cost-cutting in a struggling South African economy.
Banking operations saw headline earnings up 5% on the prior year (FY18) to R27.2 billion and a return on equity (ROE) of 18.1%.
This result was driven by quality top-line growth and continued positive operating leverage, it said.
Group headline earnings were R28.2 billion, an increase of 1% on FY18, and ROE was 16.8%. The group’s capital position remained strong, with a common equity tier 1 capital adequacy (CET1) ratio of 14%.
A final dividend of 540 cents per share has been declared.
Looking at its specific sectors, the bank noted that while Liberty contributed positively to group earnings growth, the group’s other banking interests were a drag – particularly in South Africa where load-shedding undermined growth prospects and the pace of policy progress and reform was slow.
It pointed to Eskom’s fiscal concerns, which remained unresolved, and business and consumer confidence levels remaining low, constraining spending and demand for credit.
Despite this environment, Standard Bank reported 6% growth in its personal and business banking segment, where headline earnings grew 6% to R16.5 billion.
“A favourable change in product mix and higher average rates in South Africa supported an increase in margin. This was largely offset by lower average interest rate across the Africa Regions portfolio and the impact of IFRS 16,” the bank said.
Notably, South African customers continued to migrate to Standard Bank’s digital platforms, in particular the SBG mobile app.
SBG mobile app active users increased 55% to 2.0 million and the value of transactions executed via the mobile banking platform increased 46% to R382 billion, it said.
Job cuts and branch closures
Standard Bank said it was able to contain cost growth and expenditure in 2019, supported by a reduction in headcount. Costs increased 4% year on year.
“Cost growth was well contained, resulting in continued positive operating leverage. A decline in headcount supported slower growth in staff costs,” the bank said.
Standard Bank closed more than 100 branches and retrenched hundreds of staff members as part of its efforts to digitise its retail and business bank in 2019.
The reconfiguration of traditional channels in South Africa resulted in a 16% decline in the number of branches (to 528 branches) and 15% decline in branch square meterage (to 311,000 sqm).
Employees impacted by the targeted restructure were provided with an opportunity to apply for existing vacancies, broad-based training and appropriate severance packages. Less than 100 employees were formally retrenched.
The bank said that it has worked hard to minimise the impact of this re-organisation on its staff members, however, CEO Sim Tshabalala said that the group could no longer fight against the march of technology, and keep wasting resources on channels which were a net drain.
Other operating expenses increased by 6%. IT costs grew 17% reflecting higher software licensing and maintenance costs, an increase in cloud-related costs and an increase in outsourcing.
The adoption of IFRS 16 (accounting standard on leases) gave rise to an increase in depreciation and a decrease in premises costs, it said.
Prospects for 2020
The bank said that while there are some positive moves in terms of governance in South Africa, a lot of work still needs to be done.
“Trading conditions are expected to remain difficult, regulatory-imposed constraints and technological change are set to stay, and competition will continue to intensify,” it said.
“Our top priority in 2020 is to increase our competitiveness by improving client experience through the seamless delivery of relevant and personalised financial solutions to our clients in a secure manner via their channel of choice.”
The group also pointed to further streamlining of its operations, particularly in tightening costs and resources.
“We will continue to exercise tight cost discipline and seek to allocate resources efficiently and in support of our strategy to build a future-ready Standard Bank Group,” it said.