South Africa’s largest bank has big plans

Standard Bank is preparing to enter a new era of enhanced capital efficiency and growth, outlining ambitious targets for 2026 to 2028. 

These targets include headline earnings per share growth of 8% to 12% and an average return of equity between 18% and 22%.

“We will defend and grow our core businesses and pursue growth opportunities. We will focus on opportunities with a clear competitive advantage and that provide accretive risk-adjusted returns,” the bank said. 

Standard Bank CEO Sim Tshabalala is bullish about the bank’s prospects, saying it is the best-placed financial institution to benefit from Africa’s continued economic growth in the coming years. 

However, capitalising on its immense investments in Africa over the past three decades is only one part of Standard Bank’s strategy to meet these targets. 

In an interview with Daily Investor, Kenny Fihla, the deputy CEO and head of the bank’s South African business, outlined how the bank plans to reach these targets. 

Apart from defending and growing its core businesses, Standard Bank has three key focus areas for future growth. 

The first is to lead Africa’s energy and infrastructure development, which presents significant lending opportunities for the bank. 

“We think that the opportunity to invest in rolling out the infrastructure needed to drive economic growth in South Africa and Africa is massive,” Fihla said. 

In South Africa, the bank is focused on playing a key role in the buildout of renewable energy, rolling out transmission lines, and developing logistics infrastructure through its Corporate and Investment Banking (CIB) division. 

“This presents a huge opportunity for our business, not only from a lending point of view but also from the ancillary business that will come with it through the jobs created and increased value creation that we can capture through our other operating units.” 

The second area of focus is building the number one private banking business in South Africa and Sub-Saharan Africa. 

Fihla admitted that to do this, Standard Bank would have to transform the client business currently offered. 

This included upskilling private bankers to offer improved service, increasing the personalisation of offerings, and cross-selling insurance and investment products. 

Standard Bank’s African business is the third pillar of this strategy. It is looking to capitalise on the significant investment in building out its operations on the continent. 

The Africa Regions business has grown strongly from almost a negligible operation to making up 41% of the bank’s earnings. 

Crucially, these economies are growing faster than South Africa and, thus, offer greater opportunities for growth at the moment. 

“We have a solid foundation upon which we can build. We have been developing a whole range of solutions, streamlining our own operations and investing in people,” Fihla said. 

“We need to get the execution on that up a level and ensure that we are able to scale up in markets where we are underweight.”

These targets and the accompanying strategy come after a period of very strong growth for Africa’s biggest bank by assets. 

In 2020, it laid out lofty goals for the business that some had argued was stagnating and too big to manoeuvre effectively. 

The bank’s targets for the five years from 2020 to the end of 2025 included an average revenue growth of between 7% to 9%, a significantly lower cost-to-income ratio of 50% and a return on equity of 17% to 20%. 

To illustrate how lofty these goals were, when they were set – the bank’s revenue growth was relatively flat, its cost-to-income ratio was at 59.1%, and its return on equity was only 8.9%. 

The key driver to achieve these goals would be to significantly reduce costs associated with legacy IT systems effectively manage physical infrastructure, from offices to ATMs, and rationalise headcount. 

In the bank’s annual results presentation for 2024, Tshabalala said it is well on track to achieve its targets and expects some improvements in the current year as older IT systems are retired. 

Standard Bank revealed the progress it has made regarding this target, with significant revenue growth and a much lower cost-to-income ratio, which resulted in an improved return on equity. 

The bank managed to grow its revenue from R101.4 billion in 2020 to R158.7 billion at the end of 2024 at a compound annual growth rate of 12% – well above its 7% to 9% target range. 

Its cost-to-income ratio improved dramatically from 59.1% in 2020 to 50.5%, approaching its 50% target for the end of 2025. 

As a result, its return on equity has skyrocketed from 8.9% in 2020 to 18.5% in 2024, above its target range of 17% to 20%.