Good day, ladies and gentlemen, welcome to the Standard Bank Group pre-close conference call. All participants are currently in listen-only mode, and there will be an opportunity to ask questions later during the call. If you should need assistance during the conference, please signal an operator by pressing star and then zero. Also, note this event is being recorded. I will now hand over the conference to Vineshri Reddy. Please go ahead. Good afternoon, everyone, thank you for joining the Standard Bank Group pre-close call this afternoon. My name is Vineshri Reddy, and I will be managing the call. As you will be aware, we issued a voluntary trading update and trading statement on SENS this morning. The purpose of this call is to cover the highlights of that announcement, and then we will open the line for questions. On the call today, we have Arno Daehnke, the Standard Bank Group Financial Director, Brooks Mparutsa, Barbara Bell, and Thembelihle Ngema, the client segment CFOs, Desmond Oosthuizen, Head of Financial Control, Sayuri Govender, Head of Reporting, and Andrew Lonmon-Davis, CFO from Liberty. I will now hand over to Arno. Thank you, Arno. Over to you. Everyone, it's great that you're dialing in and showing interest in Standard Bank Group. I will start with some brief comments on the macroeconomic environment, and particularly how things have evolved since we released our results in March. I will then turn to the trends we are seeing in our business. Post our results in March, and since our voluntary trading update in April 2023, the global economic and geopolitical environment remains volatile, with global growth slowing in response to persistently high inflation and interest rates. We have seen public debt as a ratio to GDP increase across the world during COVID-19. Expectations are that these remain elevated, posing a growing challenge for policymakers as interest rates rise and revenue collections slow in many African countries. In South Africa, the situation is not much different. We expect inflation interest rates to be higher for longer, and economic growth will remain constrained. At the end of May, the South African repo rate had increased by 125 basis points in 2023 to 8.25%. A further 25 basis point increase is anticipated in the second half of the year. The rand continues to be pressured by a strengthening USD and dampens investor sentiment. Despite the macroeconomic environment, the group's results for the period ended 31st of May, 2023, reflects a healthy and growing franchise. This growth can be attributable to continued balance sheet growth in support of our clients, the endowment impacts of higher interest rates, improved customer activity levels, and increased use of our risk management capabilities in volatile trading environments, all of which have contributed to strong top-line revenue growth. Africa Regions franchise has delivered remarkable growth during this period and contributed 46% of the group's headline earnings. Turning to our performance and trends for the five months to the end of May 2023 for our banking operations, specifically. Starting with revenue. In the period, our banking activities revenue growth was in excess of 20% compared to the same period last year. Continued balance sheet growth and higher than expected average interest rates across most of our markets supported net interest income growth. Our non-interest income growth was supported by continued growth in transactional volumes, fee and commission income, as well as trading revenue. With regards to costs, a combination of higher fixed remuneration in a high inflation environment, higher incentives in line with business performance, as well as increased technology spend on U.S.D-denominated software licenses and cloud migration costs, all contributed towards operating expenses growing in the mid-teens for the five months of 2023. Weighted average inflation across our countries of operation was 11.8% for the period. I do wish to note that we still achieved strong positive jaws in the current period. Turning to credit. Credit payment charges were almost 50% higher for the five months of 2023 compared to the charges in the first 5 months of 2022. This was as a result of larger lending books, consumer strain in South Africa, and increased sovereign debt risk in Africa regions. The credit loss ratio for the current period was elevated, still within the through-the-cycle target range of 70-100 basis points. If I unpack credit by our business units, credit payments related to consumer banking customers are currently elevated, primarily in South Africa and particularly in home loans. On the back of rapid interest rate hikes and sustained high inflation levels, which has resulted in some customers being unable to meet their debt obligations in full. Overall, the credit loss ratio for consumer banking clients is currently outside of the target range of 100-150 basis points. Coverage levels remain strong for this business. Credit payments have also increased within our business and commercial banking segment, due to a buildup of new non-performing loans, particularly in single names in Africa regions and across the small enterprise segment in South Africa. The credit loss ratio for this business is currently also outside the target range of 100-120 basis points. Within Corporate and Investment Banking, corporate credit losses are currently below the 40-60 basis points through the cycle range for customer impairments. We note the weak trading results of several closely monitored clients across our network. The knock-on impacts of the deterioration in the South African consumer sector into our corporate client base are being carefully analyzed. Sovereign defaults continues to be a risk, and current levels of credit provisions for financial investments are elevated. For the 5 months of last year, we had no impairments for financial investments. Our provisions currently reflect adequately in our assessments of these risk factors across our network as at May 2023. Turning to Liberty and ICBCS. Liberty Holdings Limited continued to record improved claims experience and strong earnings growth, despite losses experienced in the shareholder investment portfolio due to market movements. ICBC Standard Bank PLC recorded an operational profit in the first month, five months of 2023. I wish to remind you that we had a sizable insurance recovery in January 2022, which is not repeated in this period. Which has meant that ICBC Standard Bank PLC contribution to group overall profits has declined period- on- period. Turning to capital and returns. Our capital and liquidity levels remain strong. The group's common equity tier 1 ratio as of the 30th of April, 2023, was 12.9%. I'm pleased to announce that the group's return on equity for the period comfortably exceeded group cost of equity. Turning to the outlook and our guidance for the 12 months to 31st of December, 2023. While the economic outlook has deteriorated and uncertainty persists, opportunities to help our clients and in turn grow our business exist. Our group guidance for the 12 months to 31st of December, 2023, has changed. Our latest estimates indicate higher net interest income growth compared to the low teen guidance given in March, and higher non-interest revenue growth compared to the earlier mid-single digits guidance provided in March. Cost growth is anticipated to be slightly higher than our weighted average inflation rates for the year. Our expectation for strong positive jaws remains. The group's credit loss ratio is expected to increase towards the upper end of the group's through the cycle target range of 70- 100 basis points. The group's 2023 return on equity is expected to show continued progress into the group's ROE target range of 17%-20%. We remain committed to serving our clients and achieving the 2025 targets and strategy we laid out in August 2021. Finally, as noted in the announcement this morning, we expect the group's headline earnings per share and earnings per share to be more than 20% higher in the first half of 2023 compared to the first half of 2022. We will provide a more specific guidance range once there is reasonable certainty regarding the extent of the increase in earnings. We will report the group's first half results of 2023 on the 17th of August this year. Arno, thank you. Please, can we move on to questions? Operator, over to you. Thank you very much. Ladies and gentlemen, if you wish to ask a question, please press star and then one on your touchtone phone or on the keypad on your screen. You will hear a confirmation tone that you have joined the queue. If you wish to withdraw your question, please press star and then two to remove yourself from the list. Our first question is from Binuna Pushkareva of Goldman Sachs. Please go ahead. Hi, good evening. Thank you much. It's Waleed Mohsin from Goldman Sachs. Thank you for the opportunity to ask questions. Arno, a few questions all on asset quality, please. Firstly, you mentioned the increase in the credit losses on the mortgage portfolio. If you could kindly let us know which vintages are these? Are these some of the more recently written mortgages, or is it the back book where you're actually seeing the stress? That's the first one. Secondly, if you could also talk about some of the other retail products, if you're seeing any stress, any material stress on the rest of the retail product space. My third and final question, on the asset quality side. When we look at the commentary that you have for retail, commercial, and corporate, it seems there's more stress. When we look at the revised guidance, it's only moved from above the midpoint of the range to the top end of the range. Just wanted to get your thoughts on the minor adjustment over there. I mean, just the commentary seems to suggest it's a higher adjustment. Maybe you could also comment on what's keeping the corporate cost of risk well below two cycle levels, although you note stress in certain sectors. Thank you. Great. Thanks, Waleed. Thanks very much, and great to hear you. For the retail questions one and two, I'm gonna hand over to Lisa. The mortgage vintages and the retail, other asset classes performance. Over to you. Thank you. Thanks, Arno. Thanks for the question. What we've experienced from a mortgage portfolio is a couple of things. You're absolutely right. We've grown the book quite significantly in the last two years. What we have, though, seen is that actually been our best vintages is the book that we actually built in 2020, when all the competitors were not in the market. We were able to actually capture quite a lot of low-risk clients. We're actually quite comfortable with those vintages. What we do see, and where we see pressure currently within the home loans portfolio, is those clients that have income. The installment to income ratio is above 30%. That's what we see. We also see clients that have, you know, home loans below a pocket of, you know, home loans below ZAR 1.5 million. We do see some of those to be under pressure. I think what's quite important in terms of just context, is that what we've done in the last couple of years is that we've actually been very targeted in terms of the clients that we've actually grown this book with. It, it has been largely within the affluent segment. The average income, in terms of our lending, has been over ZAR 60,000 on a monthly basis. That's actually quite an important context in terms of where we've actually played. That's, that's where we see. I think the other pockets of pressure we see in the home loans portfolio has been on first property. Clients that have bought their first property and are below, which is a very small pocket, and have a salary between ZAR 15,000 and ZAR 40,000, we do see some of those clients to be under pressure. That's the population. I think overall, more broadly, what we've also seen is really an increase, a flow into debt review, which you would expect in this sort of market. Debt review overall across the portfolio is up 22% from this time last year. Those are the two big, I would say, big drivers and population where we see pressure. I think what's quite important in the context of all of this, Arno touched on it at the beginning of the call, is all of this is in context of a very strong coverage. Our coverage sits at 5.9%, which is way ahead of where we were pre-COVID-19. We've really held that coverage quite tight through this period. The bulk of the pressure you see is in the home loans book. The other important piece is that, you know, in the base, there is a base effect of in the first half of last year, what we did, we obviously still had the payment holidays from the COVID-19 period. We had a lot of releases in the base. That's also added to the elevation that you see from a year-on-year perspective within home loans. The big pressure point has been on the home loans book. We haven't seen a significant deterioration in terms of our unsecured portfolios, and a lot of that is because we've been quite targeted in terms of how we play there. We have never played in low income with an unsecured. Therefore, our portfolio from an unsecured perspective, is largely affluent. You know, we've had some deterioration, but it really is not significant. That's why we really just, you know, the big focus has been on that home loans book. Thanks, Arno. Cost of risk, we expected for this full year to be at the upper level of our 60- 100 basis points risk ratio, as I mentioned. We actually expect a slightly better performance in the second half of this year than the first half. Why is that? We've got multiple de-risk initiatives underway, particularly in the retail bank, which is gonna support us in the second half. As Lisa really has intimated, we are well provided and have opportunity to think about our provision levels going into the second half of this year. All of this, Waleed, though, is premised on our base case interest rate scenario, which is another 25 basis points rate hike in July. Of course, you know, if we have a base case scenario playing out with many more interest rate hikes, you know, that might put additional pressure onto the portfolio. Under the base case, currently, we remain confident that we'll be within the range still. Perfect, Arno. Just the point on corporate cost of risk as well. Yes. Yeah, on CRB, Brooks, do you want to maybe do that question? Thank you. Yes, thanks, Arno. In terms of CIB, I think there's a number of issues to mention. When we talk about through the cycle range of 40-60 bps, that excludes some of the sovereign provisions that we would need to hold because that target range really refers to our customer exposures. That is a contributor to that. We have seen some impairments coming through in the first five months of this year with some exposures in Ghana and Malawi. In as far as the remainder of our book in South Africa and in African regions, we've seen some stress in the consumer sector, and we've taken the adequate provisions in as far as that's concerned. Some pressure in industrials, particularly in South Africa, and we've made the requisite provisions. I think what is also important is in terms of our provisioning, taking a forward-looking view, it's also important to state that the adequacy of provisions that we held as at the end of December, will impact sort of the additional provisions that we need to hold in 2023, coming through the income statement. We're fairly confident that we will come in at probably the bottom end of the range of the 40-60 basis points, but that excludes the sovereign exposure. Thank you. Thank you very much. That's very helpful. Arno, just to confirm that then the 70-100 basis points, the top end of that range that you guide for this year excludes sovereign provisions? Do I understand that correctly? Yeah, excludes sovereign provisions. The credit loss ratio is calculated over loans advances and excludes financial investments, so which sovereign provisions are calculated. Perfect. Thank you much. That's very helpful. Thank you. Thank you, Walid. Thank you. The next question is from Kiamo Kunupi of Citi. Please go ahead. Good afternoon. Thank you very much for the update and for the opportunity. It's Kiamo, Kunupi from Citi. Couple of questions from my side. Can you please provide more detail on the drivers for the impressive Africa Regions performance? Maybe also touching on regional over or underperformance related to expectations that you had in March. Secondly, can you also maybe comment further on current loan growth trends? So which products or segments have been driving growth and where are you pulling back? And maybe also, how has the worsening macro picture impacted the group's mid-single-digit loan growth guidance? Thanks. Africa regions performance has exceeded our expectations, really across most of the markets, South and Central Africa, East Africa and West Africa. The portfolio is really performing across all of these regions. Obviously, the higher interest rates environment impact is supporting that. It is also franchise growth we've seen. We've seen very strong loans and advances growth in these markets, and we've seen also exceptional trading performance in these markets in the CIB business. Credit impairments remains sort of broadly within expectations. The underperformance has been in the consumer in South Africa. As I mentioned in my call already, interest rates are higher than expected, and I think clearly painted the picture of where we are taking some strain in the mortgage portfolio. That underperformance in South Africa is slightly worse than expected in SA consumer. Loan growth trends, I remind you, we had a very strong performance in loan growth at the second half of last year, so we've got a strong installed base. Year-on-year, we've seen stronger loan growth than we've guided initially for the group. I think we guided mid-single digits in March. We're seeing higher numbers than that coming through at the moment, both on a year-on-year, as well as on an average balance sheet basis. Particularly in CIB, we've seen strong loans advances growth, more moderate in the consumer and in the business segments. I'll pause there, Kiamo, for any follow-up questions or details you want from maybe from the business unit heads. Sure. Maybe the loan growth guidance for the full year, does that still remain at mid-single digits? Yeah, our current trend is probably going to indicate that will be higher than that. Okay. Thank you. Thank you very much. The next question is from Charles Russell of SBG Securities. Please go ahead. Good afternoon, Arno and team. Thanks very much for the opportunity. A few of my questions have been asked already, but if I could just add to Kiamo's question on rest of Africa, how much of that performance was FX related? Then if I could ask another one on rest of Africa, just maybe a high level comment on the contagion risk of sovereign debt defaults and the inability to refinance across broader markets in which you've already mentioned, Ghana and Malawi. I know the market has already been concerned about places like Kenya. If you could maybe just talk to the broader region on sovereign debt risks as well. Thank you. Charles, the FX impact is not that material. The weaker rand has assisted our earnings growth and been terrible for translation. In constant currency, the performance has still been stellar and, you know, it's not that big an impact. Look, on sovereign exposures, obviously, we are very alert to sovereign risk, heightened sovereign risk. I mentioned already the heightened indebtedness of the countries. Countries which worry us are Malawi, as you pointed out to already. Kenya, we're less worried. We see good progression being made on refinancing of some Eurobond exposures. Certainly Malawi and Zambia possibly as well, are countries which we are focused on and looking quite closely. At this stage, I can affirm that we are not seeing a situation like Ghana unfolding, where there's been a sovereign, local, and foreign currency default at the end of last year. We cannot see that unfolding at this stage in our base case scenario. No doubt there is heightened risk in these countries. Thank you very much. Thanks, Charles. Thank you. The next question is from Harry Botha of Anchor Stockbrokers. Please go ahead. Hi, good afternoon, Arno and team. Thanks for the opportunity. Just a couple of questions from our side. You had fairly good non-interest revenue growth, momentum, and Consumer High Net Worth in the second half. Has that continued into 2023? On the net interest income side, has there been any change to your interest rate sensitivity and any change in funding costs, as we've seen global pressure on banks? For NRR on consumer, Lisa, you go first, and then I'll talk about NRR. Thanks, Arno. Yeah, we definitely see continued improvement. The first half has actually been better than the second half last year, and we actually expect that trend to continue. We continue to see clients activity come through, and that's translating in terms of what we see from an NRR perspective. Thanks. On the NRR sensitivity, Harry, I would still take the guidance we gave in March, which is published in our booklet, in terms of our interest rate sensitivity. We are looking, as I have communicated to the market, both in March and more recently, at adding some hedges, both tactical and structural, to the portfolio to lock in the higher interest rates and protect some of the margins as the interest rate cycles might turn. As we add to those positions, obviously, the interest rate sensitivity of the portfolio will decline somewhat. Funding costs, yeah, there has not been a material impact on funding costs, so we continue to access funding in multiple markets, and has not been a major driver. If we have that as a spread over JIBAR in the wholesale market, of course, if we measure it as such. I mean, absolute rates, obviously it's much higher, but the endowment impact is supporting the margin expansion. Great. Thank you. Thanks, Harry. Thank you very much. The next question is from James Starke of RMB Morgan Stanley. Please go ahead. Hi, good Arno, and everyone else. Thanks for the opportunity. Just turning to the credit impairments, can you just unpack the commentary? You mentioned a more than 50% increase year-on-year. Square that with the credit loss ratio guidance of below the top end of the range. I mean, that up 50 odd percent, is there any of the sovereign-related impairments included in that, which would not perhaps be included in the CLR guidance? That's the first one. The second one is, have there been any write backs relating to the $900 million in credit charges taken on the Ghanaian local currency and U.S. dollar bonds from FY 2022? Lastly, if you could just add a bit more color around the balance sheet growth. You've already touched on loans, but if you can give us a sense around what's been going on with your financial investments and even total asset growth. The last one is on ICBC Standard. I mean, I know you flagged the insurance recovery, but how should we think about the operating performance there? Is it perhaps quite similar to what we saw in the second half of FY 2022? Thanks. Yeah. Thanks, James. On credit, the 50% increase, or just under 50%, does include a relatively small portion of impairments on financial investments, which is not included in the CLR ratio. To answer your question there, bearing in mind with the growing balance sheet, of course, there's both a numerous and a denominator effect. Based on our current calculations, obviously, the CLR is still not target range, as I've indicated. Sorry, the next question was, you had something on credit. Ghana write backs. Yeah. Have there been any write backs on the Ghanaian charges from the end of last year on your sovereign exposure there? Yeah, we've had a very small write back in the trading portfolio position, a derivative-related position. It's been a small write back on that, not material in context of the group overall. On the actual, take on the bonds and provisions taken on both local and foreign currency bonds, there's been no write back on those. Okay. On total asset growth, yeah, as I said, it's higher than expected. The lumpy CRB business in particular has resulted in that, then folks can give us more detail on that. Overall, we are tracking in well above the mid-single guidance we gave earlier in March this year. I'm looking at May 2023- May 2022, we're sort of in low double digits territory. Thanks. The last one, ICBC Standard, yeah. Yeah. They continue to do well, ahead, with tracking ahead of expectations, and we can expect another good first half of the year. The results have also been flattered by release of a provision on a provision they had relative to a Russian counterpart some time ago. That's also has aided that good trading performance, and we'll give more detail on that when we speak to the market in August. Thank you. Thank you. The next question is from Ross Krige of Investec. Please go ahead. Good evening, everyone. Thanks very much for the call. Just three questions from me on the, on NIM expectations. I guess, you've already addressed it somewhat speaking to Harry, but, just, you guided 20-30 bips, I think, previously, when we spoke in March. Given what's happened with the rates and based on your current expectations, would you be willing to give us a sense of where that could land? Secondly, just on Nigeria, there's been quite a lot of news flow around some of the reforms there. It would be interesting to hear your views on how that's playing out on the ground. Thirdly, just on ROE, performance and outlook, just wondering what is your group cost of equity, and does the guidance imply, be for FY 2023 within the range, or right? Thanks. Ross, on Bloomberg Guide, the 20-30 basis points, it was margin related, right? Yeah. We're probably going to have margins expanding wider than that on the back of high interest rates. That guide is probably too low at this stage. You can expect a wider marginal impact on that. On Nigeria, we obviously welcome the liberalization of the exchange regime. Also, quite impressed with the speed with which this was done. I look just now, as you would know, the Naira is currently trading around NGN 700 to the dollar. For half year reporting, obviously, we'll have an FCTR impact translating on there, the weaker currency. Obviously, for the month of June, we'll be translating that also, the weaker currency of earnings contribution from the Nigerian entity. Overall, a positive development. you know, this will no doubt stand in good state for the market overall. Actually, on the day this was announced, we actually noted that the financial sector, in terms of listed companies on the Nigerian Stock Exchange, was up 10%, I understand, because the market is taking this quite favorably. On cost of equity, it's around 15%. The previously published number was 15.2%, so it's somewhere around 15%-15.2%. We're still doing the final calc for half year. Don't expect it to move materially on that. On return on equity, we're tracking ahead of our expectations in terms of our 2025 targets. We're entering that range quicker than expected. At this stage, I'm somewhat optimistic that will be within the range by 2023 financial year. Thanks, Arno. Thank you. Ladies and gentlemen, a reminder, if you wish to ask a question, please press star and then one. The next question is from Baron Nkomo of JP Morgan. Please go ahead. Yeah. Hi, just a quick one from me. Any comments you can make around Liberty's Life new business volumes and the related VNB margins? Thanks very much. Andrew, over to you, please. Thanks. Baron, in terms of new business volumes, there are certain lines of business that have been delivering really well, and those are largely the investment single premium products and the guaranteed annuities. In respect of the risk products, we've in a continuation of the effect we saw during COVID, where especially on our flagship product, the Protector range, there was a reduction in churn. We're seeing improved persistency, but at the same time, slower sales growth. The recurring premium investment products are following a similar trend. In terms of the VNB, I think you should know we've stopped using VNB as a measure. We now use new business value. That also includes the value of earnings that emerge on short duration business, for example, on the group life business. As we've seen an improvement in mortality, that effect will come through in that new business value measure. All else equals sort of tracking reasonably well and consistent with what was mentioned earlier in terms of the state of the economy. Okay, thanks. Thanks, Andrew. Thank you very much. We have a follow-up question from Harry Botha. Please go ahead. Great. Thank you. I just wanted to get a sense of if there's any kind of changes you're making to your asset holdings in Africa region, given the sovereign risks. Have you diversified your asset portfolio? Has there been any impact on yields because of that? When you talk about asset portfolio, Which asset classes are you referring to here, Harry? government bonds or low risk, liquid assets. Yeah, yeah. Of course, in countries where we are worried about the sovereign risk, we would be minimizing and reducing our surplus placements with governments. You know, that's part of our normal risk management processes. Okay. Has there been any meaningful impact on NIMs or yields because of that? No. No. No, there's no meaningful impact at a group level on these adjustments. Thanks. Could be not in NIM or, yeah, you'd struggle to see it in our accounts, actually. Thank you. Bye, Harry. Yeah, great. Thank you. Thank you very much. Ladies and gentlemen, we have no further questions in the queue. I would like to hand back to management for some closing remarks. Thank you, everyone. Arno, would you like to make any closing comments before we end the call? Thank you everyone for dialing in for this, for this update. Obviously, we are looking forward to seeing you August, all of the background there. I wish you a good Tuesday evening. Thank you very much. Ladies and gentlemen, that then concludes today's event. You may disconnect.