STANDARD Bank on Thursday pledged to further slash costs after the largest banking group by market capitalisation acknowledged they could impede efforts to expand revenue in a subdued economic environment.
Group CEO Jacko Maree said at the release of the bank’s first-half results, to June, that the combination of an 11% growth in headline earnings to R7.4bn, or 460.9c per share, and a 17% rise in costs by R2.84bn was "disappointing".
Investors seemed to agree as they pushed the share price down to close 2.38% lower at R113.43.
Standard’s costs include dollar-based expenses converted into local currency and those to fund growth.
But analysts say the bank needs to get a firmer grip on how it manages expenses, while expanding revenue and further improving return on equity.
The group’s income rose 15% to R32.3bn, boosted by an 18% rise in net interest income of R15.8bn and a 13% rise in noninterest revenue of R16.5bn.
Adrian Cloete, an equity analyst at Cadiz Asset Management, said although the results were "reasonable" they were still "a bit below" the expectations of sell-side analysts, which could trigger a downgrade of the bank’s full-year earnings.
Mr Maree said dollar-based costs were still too high, given the subdued revenue outlook, particularly at operations outside Africa. "We are going to be working incredibly hard to reduce the (dollar) cost base."
The group would, however, continue to invest for growth via organic expansion rather than through acquisitions, and also gradually transfer capital at its UK subsidiary to fund growth in Africa, even though the process was proving to be complicated.
Group financial director Simon Ridley also said greater focus would be on managing dollar-based costs at its operations outside Africa.
Standard’s cost to income ratio increased to 59.1%, compared with 58% in the same six months last year.
Its cost ratio was the highest of the three big banks that have reported their interim results. Nedbank, though operating from a smaller cost base, reported a cost to income ratio of 55.5% up to June, and Absa 54.9%.
Sim Tshabalala, Standard group deputy CEO, said in constant currency terms, the bank’s cost increases rose about 11% and were therefore not alarming.
Mr Tshabalala said Standard Bank had, for example, allowed marketing costs to rise to raise product brand awareness, while also responding to competitor activity in segments such as unsecured lending.
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