Rising interest rates boost Standard Bank's profits

Rising interest rates, higher economic activity as more countries abolishes lockdowns, and higher commodity prices have become a boon for Standard Bank.The blue bank said its earnings rose 28% in the first three months of 2022 compared to the same period in 2021.The 50-basis points interest rate increase in South Africa, one in January and one in March – means that the bank has been collecting higher net interest income than in the first quarter of 2021, when South Africa&#039;s repo rate was still at a historic low.And it&#039;s not just in South Africa where the bank&#039;s net interest income is improving. Namibia, Angola, Ghana, Mauritius, Mozambique, and Zambia, where Standard Bank has operations, have also faced rate hikes.In Namibia, the central bank increased the repo rate twice this year. At the first monetary policy announcement, the Bank of Namibia (BoN) increased the repo rate from its historic low level of 3.75% to 4.00%, moving the prime lending rates for local commercial banks from 7.50% to 7.75%.Similarly, another 25-basis points increase was announced this month, moving the repo rate to 4.25% and the prime lending rate to 8.00%. Local analysts expect further increases at the upcoming monetary policy announcements.The head of research at IJG Securities expects the central bank to increase interest rates three to four times this year. In addition, Simonis Storm economist Theo Klein expects another 75 basis points (bps) hike before the end of the year.Drivers"Higher average interest rates and a larger average balance sheet supported the group&#039;s net interest margin and net interest income growth period on period. Higher transactional activity underpinned by a larger client base and less restrictions supported fee growth," wrote Standard Bank in a trading update on Monday.The banking group said global market volatility and higher commodity prices also boosted its trading revenues as more clients moved money around. The result was trading revenue that was slightly ahead of the first quarter of 2021.And the drawbacks that banks suffered at the start of the Covid-19 pandemic are also fading away. Standard Bank said its credit impairment charges – which shot up to historic highs in 2020 – continued to decline. The group&#039;s credit loss ratio improved to the lower end of its target range of between 70 to 100 basis points.The performance in the bank&#039;s insurance operations was just as upbeat. Standard Bank said Liberty Holdings – which became its fully-owned subsidiary in February and delisted from the JSE – recorded a small profit in the first quarter of 2022.Credit uptakeInterest rates is the cost borrowing and thus influences credit update by the private sector. According to the Bank of Namibia, for the month February 2022, growth in private sector credit extension (PSCE) edged up to 2.8% at the end of February 2022 from a growth rate of 2.7% at the end of January 2022.The rise in PSCE growth is explained by increased demand by businesses specifically corporates in the fishing and financial services sectors.The central bank noted that PSCE growth generally remains subdued in line with the current economic state in the country as well as low borrower’s appetite for credit, BoN said.Analysts expect credit uptake to remain subdued due to rising interest rates. Consumers budgets will be affected as they will face high interest on loans, while facing high food and fuel prices at the same time. In March 2022, transport inflation stood at 13.8%, while food inflation stood at 4.75, according to the Namibia Statistics Agency (NSA). -Fin 24Additional reporting by Phillepus Uusiku

Rising interest rates boost Standard Bank's profits

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