Standard Bank will not pursue short-term gains to achieve further dominance in Africa but will push to aggressively expand return on equity, which is still too low, says group CEO Jacko Maree.
He also ruled out acquisitions by Africa’s largest bank by assets, saying it would expand organically while continuing to reduce its banking activities internationally and in London. Mr Maree last week said the Johannesburg-headquartered bank would not undermine its future prospects by growing for the sake of size and would balance between investing for growth and creating sustainable shareholder value.
“We recognise that our current (return on equity) of 14,3% (2010: 12,5%) is too low and we are managing the levers of (return on equity) aggressively to improve the ratio,” he wrote in Standard’s latest annual report. “However, we will not undermine our growth plans to defend short-term returns, nor will we pursue growth at levels of return that are too low. We are acutely aware that striking the right balance is integral to creating sustainable shareholder value,” he said.
Standard last year grew earnings by 21% to R13,6bn (2010: R11, 3bn) and is one of the most capitalised of the big four banks. It plans to deploy its excess capital to fund growth in its key South African home market and in sub-Saharan Africa — where it operates in 18 countries — and leave enough to comply with tougher capital ratios under Basel 3 rules.
The bank is pursuing a refined strategy that focuses on sub-Saharan Africa partly in response to a slowdown in earnings from its international operations, which were hurt by the last downturn. Standard has already sold its minority stake in Russian investment bank Troika and its controlling stake in Standard Bank Argentina to its 20% shareholder, the Industrial and Commercial Bank of China. Recently, it announced it would scale down its stake in another investment bank, in Turkey, and planned to eventually reduce by half the capital on its UK balance sheet.
Analysts say with such a healthy cash pot, Standard is better placed than its local rivals in its quest to dominate Africa, although it faces formidable challengers in the form of Barclays Bank and Standard Chartered Bank. While analysts are yet to be convinced that Standard in the short term will achieve sustainable growth from its African operations excluding SA, Mr Maree said the bank was clear about its future.
“Our strategy is very clear and we know what is required of us to fulfil our aim of being the leading financial services organisation in Africa,” Mr Maree said. “We will continue to focus on maintaining our strong position in SA and on growing in our chosen markets in the rest of Africa. We remain committed to right-sizing our operations outside of Africa in a responsible and deliberate manner.”
Mr Maree admitted the pace of the bank’s organic growth in Africa had been slower than expected. However, he was “satisfied” with its strategic position and progress made. “While an acquisition would make sense in markets where we are not yet at scale, we will primarily concentrate on continuing to grow our businesses organically.”
Courtesy of Business Day: http://www.businessday.co.za/articles/Content.aspx?id=170690