CfC Stanbic Holdings Ltd Financial results

For the half year ended 30 June 2013

Contents

Period in review

Financial analysis

Corporate and Investment Banking

Personal and Business Banking

Strategy and prospects

Q & A

Period in reviewGreg Brackenridge

Chief Executive

2013 Operating environment

Headline inflation was just under 5% as at June 2013 compared to 10% in June 2012. Inflation is expected to rise in the second half of this year driven by unfavorable base effects and prices of crude oil which have firmed in recent months.

The Central Bank rate year on year has reduced to 8.5% as at June 2013 from 18% in June 2012. Further monetary policy easing is unlikely given the risk of weakening the exchange rate. Inflation expectations and the exchange rate will inform the direction of the monetary policy.

The Shilling’s current bias is to weaken, however higher foreign exchange reserves and policy tools ought to support the local currency.

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Overview of the Group’s businesses

CIB is positioned to be the bank of choice for corporates, parastatals and international investors that will help deliver the 2030 vision in key sectors including infrastructure, agriculture, energy and manufacturing.

PBB is focused on the small and medium sized enterprises (SMEs) and larger local corporates, tactically growing the branch footprint and increasing its service to its customers through e-channels such as mobile banking and internet banking.

The equity brokerage will benefit from investors exiting fixed income securities in view of lower returns and the expected domestic and international flows from investors looking for Kenya exposure in anticipation of strong growth.

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CfC Stanbic Holdings Ltd (‘Group’) in brief

Total assets of Kes 151 billion (June 2012: Kes 157 billion).

Revenues of Kes 8,086 million (June 2012: Kes 6,643 million).

Profit after tax of Kes 2,202 million (June 2012: Kes1,213 million).

The Bank (CfC Stanbic Bank Limited) contributes 97% of revenue.

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Financial highlights – Group performance

Results reflect :

Customer loans have declined year on year by 3% mainly due to muted credit appetite coupled with early loan repayment by corporates, partly offset by PBB growth in customer assets.

Improved margins year on year mainly due to lower cost of funding which is explained by falling cost of deposits as well as reduced reliance by the bank on wholesale funding.

Global markets franchise has continued to deliver strong performance as a result of good money markets desk performance and improved margins and higher volumes in the foreign exchange flow.

Focus on cost discipline resulted in cost growth of only 9%, with expansion costs in South Sudan being the main driver of cost growth.

Operations within South Sudan yielded profits of Kes 197m whilst equity brokerage made profits of Kes 77m.

Non-performing loans have reduced 18% year on year due to a various repayments of debt in the last quarter of 2012. Decrease of proportion of CIB debt mainly due to recoveries of various CIB non-performing loans.

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J un-13 J un-12 Var

Kes m Kes m %

Total revenue 8,086 6,643 22%

Profit after tax 2,202 1,213 82%

Statement of Financial Position

Total assets 150,993 156,760 (4%)

Customer assets 63,006 65,281 (3%)

Other assets 87,987 91,479 (4%)

Total liabilities 121,114 135,212 (10%)

Customer balances 83,074 83,764 (1%)

Other liabilities 38,040 51,448 (26%)

Equity 29,879 21,548 39%

CfC Stanbic Holdings Limited

Income Statement

Awards received in 2013

The bank won the following awards: Most customer-focused bank - KPMG

Best in transaction methods and systems - KPMG

Best bank in customer satisfaction - Banking awards 2013

Deal of the year - 2013 African banker awards

Other awards received:

Best bank in Kenya Tier II (2nd place) - Banking awards 2013

Best bank in vehicle and asset finance (3rd place) - Banking awards 2013

Best bank in product marketing - Pure save (3rd place) - Think business awards 2013

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Detailed Financial AnalysisAbraham Ongenge

Financial Controller

Financial highlights

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Income statement highlights

  Jun-13 Jun-12

Var %  Kes millions Kes millionsTotal income (Kes million) 8,086 6,643 22%Profit before tax (Kes million) 3,236 1,780 82%Profit after tax (Kes million) 2,202 1,213 82%

Balance sheet highlights (average balances)

  Jun-13 Jun-12

Var %  Kes millions Kes millionsAverage loans and advances to customers (Kes millions)

64,332 65,709 (2%)

Average customer deposits (Kes millions) 86,546 84,521 2%

Operational and credit efficiencies

Net interest margin on average assets 4.79% 4.03% 

Cost-to-income ratio 55.08% 61.68% Credit loss ratio 1.26% 2.34% Non-performing loans to total loans 2.20% 2.59% 

Shareholder value

Earnings per share (Shillings) 5.57 4.43 Return on equity (including goodwill) 14.74% 11.26%  Return on equity (excluding goodwill) 21.45% 19.88% Return on assets (excluding goodwill) 3.11% 1.64% 

Summarised group income statement

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Jun-13 Jun-12

Kes millions Kes millions

Interest income 5,040 6,281 (20%)

Interest expense (1,421) (3,125) 55%

Net interest income 3,619 3,156 15%

Net fees and commissions 1,395 1,099 27%

Trading income 3,034 2,384 27%

Other revenue 38 4 794%

Total income 8,086 6,643 22%

Credit impairment charges (397) (765) 48%

Total income after credit impairment 7,689 5,878 31%

Operating expenses (4,453) (4,098) (9%)

Profit before tax 3,236 1,780 82%

Tax (1,034) (567) (82%)

Profit after tax 2,202 1,213 82%

Var %

Revenue overviewBreakdown of operating income Comments

Total operating income by business unit

Total operating income has grown by 22% year-on-year .

Corporate and Investment Banking continues to be the main contributor of Group revenues.

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Overview of income

Gross revenueNet interest income and margin

Interest income has declined year on year due to reduced base rates from 24% in 2012 to 16% in 2013.

Margins have improved year on year due to lower cost of funding, this is partly because of falling market rates on deposits as well as reduced reliance by the bank on wholesale funding.

Comments

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Credit impairments

Credit impairments charges & credit loss ratio

Comments

Reduction in net credit impairment charges attributed to the lower loan book hence no increase in general debt provisions together with improved recoveries in 2013.

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Jun-12 Jun-13

(100)

-

100

200

300

400

500

600

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

202

414

563

(17)

2.3%

1.3%

Impairment charge on non-performing loans

Impairment charge on performing loans

Credit loss ratio

Kes millions

 Jun-13 Jun-12 Var %

Staff cost

2,036

1,730 18%

Other operating cost

2,418

2,367 2%

Total operating cost

4,453

4,098 9%

Expenses evolution

Operating expenses

Operating expenses breakdown Comments

Other operating expenses have grown by 2% reflective of the Group’s focus to contain cost growth.

Staff costs have grown 18% year on year. Staff costs in 2013 include 6 months staff costs for the South Sudan operations which opened in April 2012.

Jun-12 Jun-13 -

500

1,000

1,500

2,000

2,500

3,000

50%

52%

54%

56%

58%

60%

62%

64%

1,730

2,036

2,367 2,418 62%

55%

Staff costs

Other operating expenses

Cost to income ratio

Kes millions

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Summarised group balance sheet

  Jun-13 Jun-12 Var

  Kes millions Kes millions %

 Assets      

Financial investments 29,535 26,728 11%

Loans and advances to banks 16,046 32,151 (50%)

Loans and advances to customers 63,006 65,281 (3%)

Other assets 29,977 19,707 52%

Property and equipment 2,198 2,358 (7%)

Intangible assets 10,231 10,535 (3%)

Total assets 150,993 156,760 (4%)

       

Liabilities      

Deposits from banks 23,397 31,444 (26%)

Deposits from customers 83,074 83,764 (1%)

Borrowings 5,839 6,859 (15%)

Other liabilities 8,804 13,145 (33%)

Total liabilities 121,114 135,212 (10%)

Equity      

Total equity 29,879 21,548 39%

Liabilities and equity 150,993 156,760 (4%)

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Loans and advances

Average loans and advances to customers

Loans and advances by type Comments

Loans and advances by business unit

Loans and advances to customers declined by 3% in 2013 due to reduced credit appetite as well as large loan repayments by corporates.

Increased diversification in the loan portfolio, with growth in the contribution of PBB to the loan portfolio. PBB loan book increased year on year by 4%.

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Loans and advances performance

Non-performing loans

Comments

Non-performing loans by business segment

Non-performing loans by product

Non-performing loans have reduced year on year due to a various repayments of debt in the last quarter of 2012. Decrease of proportion of CIB debt mainly due to recoveries of various CIB non-performing loans.

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Deposits

Average customer deposits Breakdown of deposits

Deposit contribution by business unit Comments

Focus over the year has been to grow core balances (current accounts and savings accounts). Fixed deposits balances have declined year on year as a result of this, and so has funding cost to the Bank.

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Funding, liquidity and capital

Total assets funded mainly from deposits.

The liquidity and capital requirements have been complied with for the period.

Liquidity ratio (Bank only)

Capital adequacy (Bank only)

Funding mix

Comments

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Group shareholder value

Shillings

Earnings per share

Return on equity and Return on assets (excluding goodwill)

Jun-12 Jun-1319%

20%

21%

22%

0%

1%

2%

3%

4%

20%

21%1.64%

3.11%

Return on equity

Return on assets

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Jun-12 Jun-13 -

1.00

2.00

3.00

4.00

5.00

6.00

4.43 5.57

Corporate and Investment BankingMike Blades

Regional head, Corporate and Investment Banking (East Africa)

CIB - Income statement and key ratios

  Jun-13 Jun-12 Var

  Kes millions

Kes millions

%

Net interest income 2,086 1,724 21

Non-interest revenue 3,984 3,076 30

Total income 6,070 4,800 26

Net interest margin (%) (on total assets)

3.6% 2.8%  

NPL/total loan ratio (%) 0.09% 0.89%  

Total loans (Kes millions) 51,660 73,350 (30)

Deposits 75,704 90,817 (17)

Total assets 115,936 122,835 (6)

Contribution to total income by product

Contribution to total income by revenue type

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CIB Strategic Aspirations

Group CIB:“We aspire to be the leading Corporate and Investment Banking business in, for and across Africa, with a specialisation in natural resources.”

CIB Kenya:“To be the dominant CIB franchise in Kenya and the hub of the leading

East African franchise.” Our core purpose will be driven by customer first, accountability, simplicity,

reliability and value for money.CIB to contribute to CfC Stanbic’s aspiration of being a top-four bank in

Kenya.

What does winning mean for us?:• Be the most profitable and efficient CIB business, measured by ROE and

Cost to Income Ratio.• Creating sustainable client revenues which will form the bulk of our CIB’s

overall revenue.

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Key achievements in 2013

Maintained market leadership in global markets and investment banking, with several high profile franchise building transactions.

Awarded ‘Best in Transaction Methods and Systems’ by KPMG and ‘Deal of the Year Award’ in the Africa Banker Awards through the involvement in the USD 67 Million Umeme IPO deal, the largest IPO in the Uganda Stock Exchange to date.

Deepened our penetration of existing clients to win key mandates and deliver sophisticated solutions to both the corporate and government sectors.

Implementing the Client Engagement Model in ensuring that we create sustainable client revenues.

Drive the culture of client budgeting and client profitability (ROE).

Strengthened focus and operational efficiency of transactional products and services (TPS) business, leading to increased interest income and fees and commissions.

Contained credit impairment charges and non-performing loans through improvement in asset quality and significant recoveries.

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Key focus areas for the second half of the year

Remain intensely focused on serving our customers and raise the overall customer experience.

Grow the customer franchise – assets, liabilities, Non Interest Revenue.

Position ourselves to take advantage of emerging industries- Oil & Gas and Mining.

Continue to capitalize on our regional and Group footprint.

Delivering a competitive transactional banking platform that fulfils clients’ needs. Core banking system implementation/upgrades: improve system stability and capability; serve customers more accurately and efficiently.

Continue building our business in South Sudan which has continued to perform in line with expectations.

Continued focus on developing our human capital to retain leadership in key products and build them across our chosen industry segments.

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Personal and Business BankingBen Wandawanda

Head, Business Banking

PBB – Summary financial information

  Jun-13 Jun-12 Var

  Kes millions

Kes millions

%

Net interest income 1,533 1,432 7

Non-interest revenue 483 411 18

Total income 2,016 1,843 9

Net interest margin (%) (on total assets)

8.7% 8.4%  

NPL/total loan ratio (%) 4.89% 4.29%  

Total loans (Kes millions) 27,392 24,082 14

Deposits 30,766 24,391 26

Total assets 35,057 33,925 3

Contribution to total income by business unit

Contribution to total income by revenue type

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Key achievements in 2013

Grew customer deposits by 26% and customer loans by 14%.

Revenue has grown by 9%, impacted by reduction in base rates in 2013.

Rated “Most customer-focused bank” by KPMG and “Best bank in customer

satisfaction” by Think Business Banking Awards 2013.

Grew customer numbers by 8%.

Increased market share in Instalment sales (VAF).

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Key focus areas for the second half of the year

Overarching strategy:• Retain existing clients.• Acquire new to bank clients.• Value for money and transparency.

Enhanced service delivery.

Balance sheet• Asset growth focus.

Income statement• Interest margin management.• Fees and commission – focus on Business Banking.

Grow market share in our targeted markets – Business Banking & targeted Personal Banking segments.

Further invest in distribution network.

People – retain and recruit the best.

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Strategy and prospectsGreg Brackenridge

Chief Executive

Where are we now?

Significant investment in infrastructure, core banking system and people over the past three years.

Achieving scale in our Personal and Business Banking business:

o Number of branches (21) has doubled since the merger between CfC Bank and Stanbic Bank Kenya.

o ATMs (41) have increased as have partnerships with other service providers to provide greater access to our banking services.

Growing transactional volumes.

Responsibly growing our balance sheet.

Cost increases have been largely in line with expectations. However, there is still need to drive better efficiency – further decrease in cost to income ratio expected.

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Looking forward

We expect the following changes in our operating environment:

Credit growth expected, especially due to reduction in base rates;

Relatively stable exchange rate.

In the short term the Group will focus on the following objectives:

Consolidation of CIB market position;

Expansion in South Sudan;

Growth in the PBB business;

Growth of the equity franchise.

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Medium term goals

Cost discipline – target CIR of 55%.

ROE performance – target of 20%+.

Non Interest Revenue as a proportion of total income – target of 50%.

Funding mix – increase share of core accounts (transactional, current and savings

accounts).

Increase PBB contribution to PAT and balance sheet.

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Contact Details

Marna Roets

Chief Operations Officer+254 20 363 8310roetsm@stanbic.com

Edwin Mucai

Chief Financial Officer+254 20 363 8601mucaie@stanbic.com

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