Standard Bank Expects Profit Jump Amid Higher Interest Rates

Standard Bank, in a trading statement update for the six months ending June 2023, announced its projected profit rise of over 30% due to several factors. The bank has benefited from a growing customer base, increased market volatility, and increased interest rates as reported by Business Tech. The recent interest rate increases, which saw the repo rate reach a 14-year high of 8.25% in July, have impacted South African consumers, but they have been advantageous for Standard Bank.

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The bank expects a substantial increase in earnings per share (EPS) and headline earnings per share (HEPS), with a projected jump of 32% – 37% and 30% – 35%, respectively. The official results for the first half of 2023 (1H23) are scheduled for release on 17 August 2023.

However, amidst the positive news of profit rise, Standard Bank also noted a significant increase in credit impairments. Credit impairments for the first five months of 2023 (5M23) rose by 50%, influenced by a larger lending book, increased debt coverage, and consumer strain. Despite the elevated credit loss ratio for 5M23, it remained within the group’s overall cycle target range of 70-100 basis points.

Yet, there are concerns as the credit loss ratio for consumer banking exceeded the group’s target range of 100 – 150 basis points, while the credit loss ratio for Business and Commercial Banking also surpassed the target range of 100 – 120 basis points. The bank attributed the elevated credit impairments in consumer banking, particularly in home loans, to rapid interest rate hikes and sustained high inflation levels. Some customers have needed help to fulfil their debt obligations fully.

On a more positive note, the group’s Corporate and Investment Banking credit losses were below the target range of 40 – 60 basis points for customer impairments.

It is worth mentioning that Standard Bank is not the only financial institution experiencing substantial increases in credit impairments. African Bank reported an extraordinary 240% growth in impairment charges on loans and advances, amounting to R2.24 billion in its financial results for the six months ending 31 March 2023. Similarly, Capitec’s total net credit impairment charges on gross loans and advances surged by 80% to R6.4 billion in its annual financial results for the year ending February 2023.

While Standard Bank expects a significant profit rise, it faces challenges with rising credit impairments, particularly in consumer banking. The bank’s performance, along with that of other financial institutions, is subject to fluctuations in interest rates and consumer behaviour, and the impact of these factors will be closely monitored.

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