Standard Bank drops outlook as bad debts rise

By Serena Chaudhry

JOHANNESBURG (Reuters) - South Africa's Standard Bank (SBKJ.J) posted a 7 percent rise in first-half headline earnings per share (EPS) and dropped its full-year outlook as bad debts mounted, hitting its shares.

Africa's biggest bank by assets, 20 percent owned by Industrial and Commercial Bank of China (601398.SS) (1398.HK), on Wednesday said its credit loss ratio -- bad loans as a percentage of total credit -- rose to 1.27 percent from 0.78 percent as consumers struggled to repay mortgages and loans due to higher interest rates and spiralling food and energy costs.

Normalised headline EPS rose to 481.8 cents from 451.1 cents the previous year, boosted by its foreign businesses.

Analysts said the results were disappointing and the stock slid as much as 4 percent in early trade. By 0912 GMT it traded 1.6 percent lower at 89.45 rand.

"There is a lot of strain in the South African business and I think the retail business actually looks worse than what we've seen from the other banks," said one Johannesburg-based analyst.

The company, which cut its full-year outlook in May to say only that it would post headline EPS growth above inflation, said it was now unable to give a reliable outlook.

It noted normalised headline EPS growth had not exceeded inflation -- 11.6 percent year-on-year in June -- in the first half and said it expected volatile global markets and rising consumer loan defaults to harm business going forward.

At 7.76 times next year's earnings, Standard Bank shares trade at a slight premium to the other three big banks, and some analysts said the stock may now lose that edge.

RIVALS

Consumers in Africa's biggest economy have been forced to tighten their belts as the central bank has raised interest rates by 5 percentage points since June 2006 to curb inflation.

Rivals Absa (ASAJ.J) and Nedbank (NEDJ.J) both reported higher first-half earnings last week but warned of rising bad debts and slower business volumes at their retail units.

Analysts said Standard Bank earnings were particularly disappointing because in theory, its foreign interests and strong presence in areas outside retail banking should make it better poised to weather an economic downturn.

"The results are worse than Absa. In places better than Nedbank, but overall the impairment levels are even worse than Nedbank, which is counter-intuitive," the analyst said.

Standard Bank said its strategy of expanding into other emerging markets helped cushion the blow at home, with trading revenue up 90 percent at its banking activities in the rest of Africa, including Nigeria's IBTC, which it acquired last year.

It said it would keep looking for growth opportunities.

Standard Bank will issue a trading statement in October to provide a full-year earnings outlook, it said.

Headline EPS is the key profit measure for South African firms and excludes non-trading, capital and certain extraordinary items.

(Editing by Erica Billingham)