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STANDARD BANK GROUP LIMITED - Financial information provided to the Industrial and Commercial Bank of China Limited

Release Date: 20/10/2020 08:00
Code(s): SBK SBKP SBPP     PDF:  
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Financial information provided to the Industrial and Commercial Bank of China Limited

Standard Bank Group Limited
Registration No. 1969/017128/06
Incorporated in the Republic of South Africa
JSE and A2X share code: SBK
ISIN: ZAE000109815
NSX share code: SNB
SBKP ZAE000038881 (First preference shares)
SBPP ZAE000056339 (Second preference shares)
(“Standard Bank Group” or “the group”)

Financial information provided to the Industrial and Commercial Bank of China Limited (“ICBC”) and
update on the group’s operational performance for the nine months ended 30 September 2020

Financial information provided to ICBC

On a quarterly basis the Standard Bank Group discloses to ICBC sufficient information to enable ICBC to equity
account the group's results. Accordingly, the following consolidated financial information, prepared on an
International Financial Reporting Standards (“IFRS”) basis, is being provided to ICBC for the nine months ended
30 September 2020.


Statement of changes in ordinary shareholders' equity for the nine months ended 30 September 2020


                            Balance as at 1             Earnings               Other      Balance as at 30
                             January 2020         attributable to     movements for       September 2020
                                                        ordinary          the period
                                                   shareholders
                                        Rm                    Rm                   Rm                   Rm
   Ordinary share
   capital                              162                                                             162
   Ordinary share
   premium                           17 822                                         31               17 853
   Foreign currency
   translation and
   hedging reserve                   (8 570)                                     8 813                  243
   Foreign currency
   translation reserve
   (FCTR)                            (7 583)                                    8 9951                1 412
   Foreign currency
   net investment and
   cash flow hedging
   reserve                             (987)                                     (182)              (1 169)
   Retained earnings                159 063                 8 548              (7 803)             159 808
   Empowerment
   reserve and
   treasury shares                   (2 728)                                   (1 573)              (4 301)
   Other                              5 480                                      1 120                6 600
   Ordinary
   shareholders’ equity             171 229                 8 548                  588             180 365


1 Themovement in the FCTR was primarily as a result of the depreciation of the Rand against the USD, GBP and
 certain African currencies.
Update on the group’s performance for the nine months ended 30 September 2020

The group remains committed to supporting our customers, employees and communities during this difficult time.
Our three phased approach - respond, recover and re-imagine – remains relevant and underpins our decision
making for the “now” and the “next”.

In 3Q20, lockdowns continued to be eased or lifted, and economic activity improved across the countries in which
we operate in sub-Saharan Africa. Despite these positive developments, we remain on high alert. Our business
continuity management programmes, including safety protocols, remain in place. Over 70% of our employees are
still working from home and many will continue to do so for the rest of the year.

From an economic perspective, we remain of the view that 2Q20 was a low point and expect an improvement in
subsequent quarters, particularly in South Africa. We continue to track in line with our previous macro-economic
expectations in South Africa, and slightly better in Africa Regions. In South Africa, our growth forecast remains
unchanged from those provided at our 2020 Interim results on 20 August 2020; real GDP is expected to contract
by 8.5% in 2020 and expand by 4.5% in 2021. Low global inflation (including low oil prices) and subdued local
demand will continue to help contain inflation in South Africa (CPI expected to average 3.3% in 2020 and 4.1% in
2021). While real GDP is also expected to contract on average across the countries in which we operate in sub-
Saharan Africa (excluding South Africa), the contraction is expected to be much less severe than in South Africa.
Kenya, Tanzania and Uganda are expected to report real GDP growth in 2020. The timing and shape of the
recovery remains subject to disruptions caused by new waves of infection, both in Africa and in key trading
partners. In addition, country-specific risks in Mozambique, Nigeria, South Africa, Zambia and Zimbabwe remain
elevated.

Against this backdrop, the group continues to provide significant support to our retail, business and commercial,
and wholesale clients via a variety of measures. Pleasingly, as economies have opened, our clients have
required less support, and many have resumed their payments. All requests for additional relief and/or extensions
have been subject to appropriate client-specific risk assessments.

By 30 September 2020, the Personal & Business Banking South Africa (PBB SA) client relief portfolio had
declined from R107 billion as at 30 June 2020 to R61 billion. On the lapsed accounts (i.e. where the payment
holiday period granted had expired and the relief had not been extended) the average monthly instalment
payment rate was >95% for the secured portfolios (mortgages and VAF), >90% for the unsecured portfolios (card
and personal unsecured) and 100% for business lending. Of the extended portfolio (i.e. where the payment
holiday period granted had expired and the relief period had been extended), 83% thereof was secured.
Provision coverage on the remaining R61 billion client relief portfolio increased relative to 30 June 2020.

In PBB Africa Regions (PBB AR), the client relief portfolio declined from R11 billion as at 30 June 2020 to
R6 billion as at 30 September 2020. Of the balance outstanding c.56% is to business customers, >75% is
secured and >75% relates to exposures to clients in Kenya, Namibia, Nigeria and Uganda. The performance of
the lapsed book is better than the rest of the portfolio – 99% in stage 1 and 2. Provision coverage on the
remaining R6 billion client relief portfolio increased relative to 30 June 2020.

The table below provides the PBB SA and PBB AR client relief portfolios as at 30 June 2020 and 30 September
2020:

 PBB – client relief loans                                   South Africa, Rbn           Africa Regions, Rbn
 Outstanding as at 30 June 2020                                             107                            11
 As a % of total respective portfolios                                     18%                           12%

 Outstanding as at 30 September 2020                                          61                             6
 As a % of total respective portfolios                                      10%                             7%

In addition, as at 30 September 2020 the group had approved R10 billion of loans under the South African
Covid-19 loan guarantee scheme (up from R8.3 billion as at 30 June 2020).

Corporate & Investment Banking (CIB) client exposures with restructured terms increased to R70 billion (from
R48 billion as at 30 June 2020). CIB continues to monitor certain sector- and client-specific risks closely; namely
Commercial Real Estate, Hospitality and Oil & Gas.

In 3Q20, PBB disbursements continued to recover from lows in April 2020. In South Africa, attractive house
prices and lower interest rates supported sales activity and in turn, mortgage disbursements in the quarter.
Period on period, growth in PBB’s unsecured portfolios continued to outpace that of the secured portfolios.
Growth of the PBB Africa Regions’ portfolio continued to outpace PBB South Africa. In CIB in 3Q20, lending to
corporates in South Africa slowed relative to 1H20, however lending growth in Africa Regions remained robust.
Customer deposit growth period on period remained robust.

The significant interest rate cuts year to date are an increasing drag on margins and net interest income (NII). In
South Africa, we do not expect any further interest rate cuts this year (after cumulative cuts of 300 basis points to
the end of July 2020). We expect a 25 basis point increase in 2021. In Africa Regions, inflation is broadly in
check and rates are expected to remain at similar levels through to the end of the year. Trading activities slowed
in 3Q20 but remained a key driver of non-interest revenue growth year to date. In South Africa, PBB account
turnover levels recovered to at or around pre-Covid levels (personal accounts slightly above and business
accounts slightly below). Larger businesses recovered faster than smaller businesses. Physical channel activity
levels (branch and ATM) improved but remained below pre-Covid levels, negatively impacting fees. In PBB Africa
Regions, ongoing customer acquisition supported fees.

Cost containment remains a focus. IT costs remained elevated as we continued to invest, particularly in digital
client capabilities. In light of the NII and activity-related fee pressures, we expect negative jaws for FY20.
Pre-provision operating profit growth was marginally negative period on period.

Credit trends to date are in line with our expectations. While initial indications are that collections have improved
in 3Q20 relative to 2Q20, retrenchment claims have also increased. The latter, combined with broader customer
stress, resulted in an increase in non-performing loans and additional impairment charges as balances
transferred from stage 1 or 2 to stage 3. There remains a risk that the environment deteriorates, and the portfolio
performance is worse than currently expected; for example, due to new waves of infection, subsequent
lockdowns and further job losses.

In 3Q20, Africa Regions’ performance continued to support group performance, offsetting ongoing strain in South
Africa. The West Region continues to perform particularly well. The scale and diversity of the group’s revenue
streams across client, product and geography remains a key advantage.

ICBC Standard Bank (ICBCS) continued to report a positive result year to date. Liberty’s performance remains
sensitive to market and Covid-related developments.

Group profit attributable to ordinary shareholders for the nine months to 30 September 2020 was 52% lower than
the comparative period. Group headline earnings was 39% lower than in the comparative period. There were no
additional material headline adjustable items in 3Q20. The group’s net asset value has grown 5% year to date.

The group is well capitalised and liquid. In terms of funding, market pricing continued to improve in the quarter
and in late September, the group’s issue of R1.5 billion of Additional Tier 1 bonds was well supported and priced
at attractive levels. Based on current planning, the group expects to continue to have sufficient capital to pay
preference share dividends. The South African Reserve Bank’s guidance on ordinary dividends remains in place
at this stage.

In line with the group’s commitment to improve disclosures on climate-related matters, the group has published
its Interim TCFD report; it is available to download on the group’s ESG and Investor Relations websites.

The group’s Basel III disclosure as at 30 September 2020 will be released in November 2020.

Looking forward, the Covid-19 pandemic, together with global economic weakness, elevated uncertainty and
depressed sentiment, is expected to negatively impact employment, incomes and equality globally. Emerging
Markets, including sub-Saharan Africa, face high external debt and a dependency on sectors most exposed to
the pandemic. They risk being disproportionately impacted, particularly in terms of an increase in poverty and
inequality.

While impacted by turmoil in the global financial market, South Africa’s ultimate trajectory will be dependent on
the execution of the structural reforms required to support higher growth, job creation and government debt
stabilisation. Standard Bank, together with many others in the private sector, will continue to work with the
government and labour in support of positive, sustainable outcomes. The progress in terms of institutional reform
is pleasing.

As a large, purpose-driven African-focused financial institution, we recognise the important role we can play in
supporting the recovery of the markets in which we operate. In addition, the change in customer expectations,
combined with the acceleration of digital adoption, provide an opportunity to expand our offering and our impact.
Lastly, the group is indebted to our employees who continue to assist and advise our customers and support our
communities despite the challenges and threats. We thank our employees for their ongoing commitment and our
customers and other stakeholders for their ongoing support.

The financial information contained in this announcement and that on which the operational performance update
is based has not been reviewed and reported on by the group's external auditors.


Johannesburg
20 October 2020

Lead sponsor
The Standard Bank of South Africa Limited

Independent sponsor
JP Morgan Equities South Africa Proprietary Limited

Namibian sponsor
Simonis Storm Securities (Proprietary) Limited

Date: 20-10-2020 08:00:00
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