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Standard Bank Gains After Profit Slumps Less Than Expected

Bloomberg logoBloomberg 7/29/2020 Vernon Wessels and Roxanne Henderson

(Bloomberg) -- Shares of Standard Bank Group Ltd. rose the most in three weeks after a decline in first-half profit was less severe than expected for Africa’s largest lender.

Earnings per share before one-time items in the six months through June probably fell 30% to 50% from a year earlier, Johannesburg-based Standard Bank said in a statement on Wednesday. The stock rallied as much as 4.4%, leading gains on the six-member FTSE/JSE Africa Banks Index and helping to pare the gauge’s decrease this year to 36%.

Some investors “will breathe a sigh of relief that the extent of the credit impairments is limited to a number slightly larger than the global financial crisis, rather than a multiple of it,” Citigroup Inc. analyst Charles Russell said in a report. Still, these could still increase when relief that the lender has extended to clients, such as payment holidays, come to an end and the “true underlying credit performance is revealed.”

South Africa’s banks are preparing for what could be the worst earnings slump since World War II as measures to curb the coronavirus drag the economy deeper into recession. Lenders are having to boost provisions for doubtful debts and restructure loans with companies and consumers struggling to meet their obligations.

Standard Bank's 50-day average crosses 100-day mark in bullish signal © Bloomberg Standard Bank's 50-day average crosses 100-day mark in bullish signal

“Despite considerable effort, the pandemic appears to be gaining momentum in certain of the markets in which the group operates on the continent, particularly in South Africa,” Standard Bank said. “The path from here remains uncertain and this continues to weigh on sentiment and demand.”

South African Banks at Risk of Deepest Profit Slump in 50 Years

Other South African banks are also likely to see one-time earnings fall by the same margin, said Nolwandle Mthombeni, an analyst at Mergence Investment Managers in Cape Town. Harry Botha, an analyst at Avior Capital Markets, also expects the country’s diversified lenders to post a similar decline, adding that Standard Bank’s trading update was better than expected.

Standard Bank will release a detailed first-half earnings report on Aug. 20. FirstRand Ltd., the continent’s second-largest bank, will release full-year earnings in September. Absa Group Ltd. and Nedbank Group Ltd., the smallest of the so-called Big Four, have said interim profit will also drop by at least 20%. Capitec Bank Ltd. has guided for more than 70% decline for earnings in the six months through August.

Standard Bank’s basic EPS probably declined as much as 80% due to accounting charges on the sale of its 20% stake in ICBC Argentina to Industrial and Commercial Bank of China and the impairment of some IT costs, it said.

(Updates with share price from first paragraph, analyst comment in third)

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