Despite the tough trading environment, Mercantile Bank Holdings (MTL) lifted headline earnings 22.3% to R123.6 million for the year ended December.

This translated into diluted headline earnings per share of 3.2 cents versus 2.5 cents for the previous year.

The group said the increase in earnings was mainly due to a 3.9% growth in net interest income despite the negative endowment effect of the low interest rate environment. The effects of the negative endowment were countered by the strong growth in loans and advances which increased 20.7%.

Approximately R400 million of the growth came through in the last quarter, which the group attributed to:

- growth in net foreign currency income of 14.6% year on year mainly as a result of a focus on margin management as well as broadening the product offering;

- strong growth in revenue from electronic services. This is mainly due to increased volumes on the new internet banking platform and a very strong performance from the E-bureau business; and

- a gain of R39.8 million as a result of positive fair value adjustments from equity investments in the structured loan portfolio. These gains together with fees earned in Multi Risk Investment Holdings (Pty) Ltd largely accounted for the overall strong growth in net non-interest income which increased by 59.0%.

The charge for credit losses increased from R3.4 million in 2010 to R11.6 million in 2011. Despite the increase, the quality of the group's lending portfolio remained sound with a net charge for credit losses as a percentage of average loans and advances of 0.28% (2010: 0.09%) being well below industry averages.

A cost to income ratio of 64.7% improved slightly when compared to 65.5% for the year ended 31 December 2010. Both ROE at 7.7% (December 2010: 6.8%) and ROA at 2.1% (December 2010: 1.7%) improved as a result of the growth in operating income.

The past few years have seen the Group concentrate on growing a quality loans and advances book, significantly increase its capital base, implement a new core banking platform, finalise a term loan from the International Finance Corporation and conclude certain key strategic investments. The Board is of the opinion that a strong foundation has been laid to ensure the sustainability of the business.

In November 2011 the Board approved a plan outlining a growth strategy whereby the group will invest in increasing its distribution capability and building its brand awareness over the coming years. In order to align the culture of the organisation to the identified growth strategy, the group embarked on a specific culture project in 2011.

“The benefits of this project are expected to manifest in 2012 and beyond. 2012 will continue to pose economic challenges as a result of domestic and international developments. Despite these challenges the Group is confident that a strong platform has been built that will assist in achieving the strategic objectives and the goals set for the year ahead,' Mercantile Bank said. - I-Net Bridge