Johannesburg - Standard Bank Group, South Africa’s second-biggest bank by assets, expects to report a strong improvement in earnings for the half year to June.
The bank said the forecast improvement in headline earnings and diluted headline earnings for the half year to June was largely attributed to settlements and disposal of interests outside of Africa.
In a trading update yesterday, Standard Bank Group, which is to release its results on August 14, said the group completed transactions to dispose of its controlling interest in Standard Bank Plc (now renamed ICBC Standard Bank) and its entire interest in Banco Standard de Investimentos.
Insurance recovery
It also gained from the effects of a recently-finalised partial recovery in insurance claims relating to the external fraud in Qingdao port in China; operating losses and final adjustments up to January 31 in Standard Bank Plc; and cash flow hedge releases relating to the above mentioned disposals.
The group said it expected earnings a share, which were 519.5c last year, would be 55 percent to 65 percent higher for the six months to June. Headline earnings a share would be 22 percent to 32 percent higher than last year’s 518.5c.
“Pursuant to these transactions, earnings attributable to ordinary shareholders include approximately R3 billion of net disposal gains excluded from headline earnings. These net disposal gains consist primarily of releases from the group’s foreign currency translation reserve,” the group said.
In July last year, Standard Bank, one of several lenders ensnared by the scandal at Qingdao port, took an R854 million hit from its exposure to suspected metal financing fraud in China, wiping out first-half earnings growth.
Chinese authorities launched a probe in May into whether metals trading firm Decheng Mining and related companies used fake warehouse receipts at Qingdao port to obtain multiple loans secured against a single cargo of metal.
The group also had an exposure of $40m (R503.32m) worth of aluminium at other bonded warehouse facilities and had started legal proceedings to secure its position.
The results vindicate a warning by Fitch Ratings that the best chance for South African banks under subdued local economic conditions was to try for business in Africa and further upstream.
But Fitch warned that growth opportunities for the country’s large banks were likely to remain limited as the the country’s economic growth forecast of 2.1 percent this year fell well below the long-term average for the country and growth rates achieved in some emerging markets.
While geographic diversification can be positive for businesses, expansion into low-rated countries inevitably increases their risk appetite.
NKC African Economics economist Bart Stemmet said the weakening rand was one of the risk factors for South Africa’s overall credit rating, which filtered down to the top four banks due to the difficult operating environment and the concentration of the industry.
He said inflation would also have a negative impact on the banks’ investment vehicles.
Standard Bank shares lost 0.98 percent to close at R151.50 on the JSE yesterday.
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