Name of the Company: Standard Bank Group
Business Sector: Banking and Financial Services
Operating Geography: Africa, Global
About the Company: The Standard Bank Group is one of South Africa's largest financial services groups having presence in 20 countries in sub-Saharan Africa. Established in 1864, it is headquartered in Johannesburg, South Africa and has over 55,000 employees as of 2016. The bank also has a strategic partnership with the Industrial and Commercial Bank of China (ICBC).
Revenue: R23 009 million- 31st Dec 2016 (up 4% from FY15)
Competitive Analysis of standard bank group
|1. Consistent value creation and returns for shareholders|
2. Strategic cooperation agreement with ICBC
3. Revised strategic direction with Africa growth focus
4. Strong core banking platform built for the digital journey
|1. Downgrade in credit ratings by Moody’s|
|1. Rapid urbanization in Africa to increase the potential customer segment|
2. Project financing in renewable energy sector
|1. Economic slowdown in most African economies
2. Cyber-security resilience required to combat fraud
1. Consistent value creation and returns for shareholders: Standard Bank Group has delivered consistent shareholder returns over the past several years. The results are commendable taking into account the challenging economic conditions in Africa marked by political uncertainty and weakness in asset prices. Dividend per share has increased by a CAGR of 13% from 2011 to 2106 while EPS has seen a CAGR of 10% over the same period. Standard Bank gave a Return on Equity (ROE) of 15.3% in 2016.
2. Strategic cooperation agreement with ICBC: Standard Bank’s partnership with the Industrial and Commercial Bank of China is an important strategic alliance. It serves the banks African and global interests and gives opportunity to provide financial services to clients in the China-Africa sector. The bank has also a funding agreement with ICBC for renewable projects in South Africa. Standard Bank’s Corporate & Investment Banking (CIB) division has also developed a joint client franchise with the ICBC. Standard Bank is also working with ICBC on the internationalization of the Chinese currency, the Renminbi (RMB) which will increase its RMB dominated cross border capabilities. ICBC is also a 20.1% shareholder in the Standard Bank group.
3. Transparency Revised strategic direction with Africa growth focus: Standard Bank revised its strategic direction from aspiring to be a leading player in emerging markets to a being an established market leader in Africa, its home continent. In 2010, Standard Bank had $3 bn in international operations (23% of NAV) which was reduced to US$ 800 million (7% of NAV) in 2016. Africa region infrastructure and reach was increased considerably with number of branches increasing to 570 branches from 98 in 2010. The Africa region revenue has also trebled from R10 bn to R30 bn in the span of 6 years.
4. Strong core banking platform built for the digital journey: Standard Bank’s core banking program (CBP) across Africa is a key differentiator amongst its peer group. New implementations went live in Nigeria, Zambia, Zimbabwe and Swaziland and more countries are scheduled for 2017. The South African implementation will get completed in 2017 after the release of updated versions. Standard Bank has invested considerable financial and human capital into these implementations and the new platforms will help bank serve its clients better through the digital journey. The core banking platforms will also help Standard Bank leverage data analytics to understand customers better through a 360 degree customer view and thus improve customer centricity, credit risk and reduce costs. The CBP implementation has also enabled the roll out of integrated mobility platforms across the Standard Bank Group
1. Downgrade in credit ratings by Moody’s: Moody's downgraded Standard Bank Group’s long-term local and forex issuer ratings to Ba1 from Baa3 in June 2017. Other major banks in South Africa were also subject to the downgrade. This is due to weakening of South Africa government’s credit profile and the weakening macro-economic outlook in South Africa. The rating thus indicates the government’s reduced capacity to support banks if required. Also it increases the cost of raising new funds from the international markets for banks and the government.
1. Rapid urbanization in Africa to increase the potential customer segment: Africa is continuing to witness a rapid pace of urbanization. 50% of the population will be living in urban locations by 2030 from 36% in 2010. This will provide large companies and institutions like Standard Bank Group with a large potential market and will also help in lowering the cost of services offered due to economies of scale.
2. Project financing in renewable energy sector: According to McKinsey, Africa possesses tremendous scope in renewable energy sector, with its potential for solar energy as 10 terawatts, with hydro and wind at 350 gigawatts and 109 gigawatts respectively. Renewable Energy Independent Power Producers (REIPP) program run by the South African government has resulted in expediting renewable energy projects. Ethiopia and Ghana have been the leaders in the sector. Other counties are also expected to ramp up investments. 85% of the power infrastructure projects funded by Standard Bank over the last 5 years have been in renewable sector and still the potential is huge.
1. Economic slowdown in most African economies: The economic outlook for Africa in 2017 is grim. South Africa is undergoing sustained economic weakness and has entered into a technical recession first time since the global financial crisis in 2009. The country witness two successive quarters of GDP contraction. Political instability and corruption in South Africa has also led to the increase the economic woes. Economic growth is also expected to be sluggish in other countries in sub-Saharan Africa with countries like Nigeria and Angola grappling with inflation concerns.
2. Cybersecurity resilience required to combat fraud: Enhanced cybersecurity is required to be implemented by Standard Bank to combat frauds. In 2016 the South African banking operations of the group was targeted in a sophisticated card fraud originating from Japan resulting in an operational loss of R300 million. The bank’s digital transformation is a fundamental business decision but at the same time it intensifies threats, such as cybercrime, data loss, technology outages and third-party risk. Standard Bank will need develop appropriate approach, frameworks and mitigation strategies to counter the same.Standard Bank Group SWOT analysis has been conducted by senior analysts from Barakaat Consulting.
1. Standard Bank Group Annual Report 2016: https://thevault.exchange/?get_group_doc=18/1492755204-SBG_FY16_Annual%20integrated%20report.pdf
2. Standard Bank Group Annual Presentation 2016: https://thevault.exchange/?get_group_doc=18/1488430892-SBK_FY16_Resultspresentation.pdf
3. Moody's downgrades the five largest South African banks to Baa3; outlook negative: https://www.moodys.com/research/Moodys-downgrades-the-five-largest-South-African-banks-to-Baa3--PR_367888
4. Economic Snapshot of Sub-Saharan Africa: http://www.focus-economics.com/regions/sub-saharan-africa
|1. Political instability in South Africa||1. Slowing economic growth in most African economies owing to weak commodity prices
2. Depreciation in major African currencies
|1. Proactive social leadership integrated with business through affordable house financing|
2. Rapid urbanization in Africa to increase the potential customer segment
|1. Digital technology solutions in CIB segment like Forex, Securities trading to drive growth|
|1. Maturing regulatory environment in Africa|
2. Compulsory regulatory training for employees to ensure risk and regulatory compliance
|1. Renewable energy projects by Standard Bank account for 85% of its energy investments in Africa
2. Reduction in carbon footprint and environmental screening of transactions
1. Political instability in South Africa: Political uncertainty in South Africa in 2017 has largely dented investors’ confidence. The present Zuma government is also facing multiple allegations on corruption and the removal of Finance Minister, Pravin Gordhan who was tackling corruption has also sent out a negative signal. South Africa is Standard Bank’s home country and the largest market and the present developments do not augur well for Standard Bank and the banking industry as a whole.
Standard Bank Group PESTLE analysis has been conducted and reviewed by senior analysts from Barakaat Consulting.
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