Standard Bank Group SWOT & PESTLE Analysis

Strength

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

Weakness

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.

Opportunity

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Threat

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References

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

Political

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.

Economic

1. Slowing economic growth in most African economies owing to weak commodity prices: Africa experienced a slow economic growth of just 1.5% in 2016 which was the worst in the last two decades, mainly due to weak commodity prices.Several African countries were heavily dependent on major commodities such as oil, gold, diamonds, bauxite, rutile, timber and copper which experienced low prices and weak demand.Though the growth rate is expected to improvise in 2017 the overall recovery remains fragile. This has led to tightening of global financing conditions and rising protectionist sentiment impacting Standard Bank.

2. Depreciation in major African currencies: The slowdown in the economy due to major correction in commodity priceshad adversely affected African currencies in 2016 causing significant devaluation. Further in many of the African economies, forex reserves have continued todecline, a sign that financial inflows are not sufficient to cover the current accountdeficit. The South African Rand has also significantly depreciated against the USD over the last three years. The Nigerian naira weakened by 58% against the US dollar in 2016. This will make it expensive for standard Bank to raise foreign currency bonds (FCB’s) or pursue any significant overseas investments.

Social

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Technological

1. Digital technology solutions in CIB segment like Forex, Securities trading to drive growth: The technological revolution across the financial services industry has caused major disruption. Technology transformation led by digital interfaces has become a critical success factor for organizations. Further the solutions help in meeting diverse needs and preferences for clients and are cost-effective. Standard Bank aims to transform itself into Africa’s leading full-service digital bank. In line with this strategy, the bank has introduced digital solutions in Corporate & Investment Banking (CIB) segment in 2016. The eMarket Trader solution helps corporate clients with a continuous link to markets enabling anytime trade. The bank’s International Trade and Payments System provides seamless infrastructure for cross-border payments. These solutions along with other digital initiatives throughout the organization will be a major growth driver.

Legal

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Environmental

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