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Banking results season is well underway, with Absa as the latest company to report on the year ended December 2021.

If you thought the swings at group level over the past two years can be significant, wait until you read deeper and see the individual business unit performance. For example, the Vehicle and Asset Finance unit swung from a loss of R927 million in 2020 to a profit of R605 million in 2021!

Gross loans and advances increased 7% and deposits were 12% higher, so the bank has followed a cautious strategy in getting money out the door. Interestingly, credit card loans only increased by 1%! To give context to that, instalment credit grew 9% and mortgages grew 8%.

Linked to the balance sheet strategy, credit impairments fell by 59%, resulting in a credit loss ratio of 0.77%. This is way down from 1.92% in the Covid-infested 2020 financial year.

Revenue increased by 5%, with the growth driven entirely by net interest income increasing 9%. Non-interest income was flat vs. the prior year. Net interest margin improved from 4.17% in 2020 to 4.46% in 2021 as interest rates stabilised.

To give an idea of how sensitive the banks are to interest rate movements, Absa’s net interest income would change by approximately R600 million if interest rates changed by 1%. To be clear, interest rate increases are positive for banks.

Operating expense growth was just 1%, so that’s a feather in Absa’s cap for cost control, although a major contributor was high non-recurring advisory fees in the base. This helped drive an improvement in the cost-to-income ratio from 59% to 56.6%. Further down the income statement, pre-provision operating profit increased by 11%.

Thanks to the improved credit loss ratio, diluted headline earnings per share jumped by 193% and the net asset value (NAV) per share increased by 12% to R156.41. Yesterday’s closing price of R177.45 represents a 13.5% premium to NAV per share.

Absa hopes to improve return on equity to over 17% by 2024. In 2021, return on equity was 14.6%, so there’s a long way to go.

The bank declared dividends of 785 cents per share in 2021, of which the final dividend is 475 cents per share. Based on the full year dividend and yesterday’s closing price, the trailing dividend yield is 4.4%.

Standard Bank is the latest financial institution to release results for the year to December 2021. The trend in the sector has been one of recovery after 2020 was severely impacted by Covid.

The blue bank is no different, with a rebound in headline earnings of 57% to R25 billion. Return on equity jumped sharply from 8.9% to 13.5%, a level that supports a valuation above net asset value (NAV).

Speaking of NAV per share, that increased by 13% to R124.93 per share. Friday’s closing price of R160.33 represents a 28% premium to NAV per share.

Although revenue for the year was only up 5%, there was double-digit growth in the second half of the year. Revenue growth was ahead of cost growth, resulting in positive JAWS (the difference between the two) of 54 basis points.

Further down the income statement, credit impairment charges dropped by 52%, something to be expected after the horrors of 2020. Importantly, they are still higher than pre-pandemic levels.

It’s worth highlighting that Standard Bank Group is the third largest asset manager in Africa. The investment business grew headline earnings by 11% in 2021.

The South African banking business saw headline earnings jump by 172% and return on equity recover to 12.5%. JAWS was 198 basis points in a year of strong revenue recovery.

In other African regions (contributing 36% of group headline earnings), currency movements resulted in a muted performance in reporting currency. Headline earnings declined by 2% as reported and increased 6% in constant currency. Return on Equity at 18.2% is still very impressive.

Prospects for 2022 are encouraging from a banking perspective, with interest rate hikes expected in the markets in which Standard Bank operates. This helps drive endowment income for banks, something that has suffered during an environment of extremely low interest rates during the pandemic.

In South Africa, Standard Bank expects three more 25 basis point increases over the course of the year.

In line with other macroeconomic commentary I’ve seen (as well as common sense), the conflict in Ukraine is a risk to further rate hikes i.e. may result in fewer hikes than the market was expecting. Standard Bank luckily has limited direct exposure to Russia and Ukraine, but ICBC does have exposure to emerging markets and commodities businesses that are being impacted.

Non-interest revenue will be driven by activity-related fees (e.g. loan origination fees) that will hopefully more than offset an expected decrease in trading revenues year-on-year.

With a continued focus on costs, the bank hopes to deliver another positive JAWS result. Credit impairments are expected to normalise, with a credit loss ratio at the lower end of the through-the-cycle range of 70 to 100 basis points.

Shareholders should note that the acquisition of Liberty Holdings minorities was completed recently and Liberty delisted on 1 March. Integrating these businesses will be a priority. Between Liberty and Standard Bank, there is over R1.3 trillion in assets under management and R73 billion in gross written premium across the short-term and long-term businesses.

Headline earnings per share (HEPS) was R15.73 and the dividend per ordinary share is R8.71. This is a trailing yield of 5.4% on Friday’s closing price. The final dividend of R5.11 per share will be paid in April.

Sanlam has released its results for the year ended December 2021. The base period covers the worst of the pandemic, so keep that in mind when assessing this result. The key takeout from this result is that operating profits have returned to pre-pandemic levels.

I’ll start with the dividend, something that Sanlam prides itself on. If you are an investor who places importance on regular dividends, then Sanlam makes a strong case for being on your shortlist. The company has been an exceptional source of dividends over the years and declared a final dividend of 334 cents per share for this financial year, up from 300 cents per share in 2020.

This is a trailing dividend yield of roughly 5%, which is substantial for a group of Sanlam’s size and resilience.

Delving into the results, we see the net result from financial services up 13% and net operational earnings up 23%. At diluted headline earnings per share (HEPS) level, the increase is 27%.

The core business has put in a solid year, with new business volumes up 14%, net fund inflows 27% higher and value of new covered business significantly higher by 44%. Importantly, new covered business margin has also increased (from 2.58% to 2.87%).

Sanlam’s equity value per share is R64.44, up from R59.20 the year before. The company is trading at a slight discount to book value. Return on group equity value per share was 13.9% in 2021.

Depressingly, Sanlam includes a note in the outlook section regarding an expectation of further waves of infection. Modest discretionary reserves will be maintained in relation to this risk.

Sanlam does not expect the new business growth rates achieved in 2021 to be repeated in 2022. The group also expects equity markets to normalise in 2022 after a major recovery year in 2021, which will also impact growth rates.

The share price jumped nearly 6% in morning trade, as the market showed its appreciation for the consistency of this financial services giant.

Nedbank has released results for the year ended December 2021. Naturally, this was a much happier year for Nedbank than the year before.

The commodity cycle pulled our economy through a tough time, which has knock-on benefits for the big banks. There’s no escaping it – their fortunes are largely dependent on South Africa’s overall prospects. Nedbank has a particularly important property division, so that exposure would’ve felt a lot more comfortable in 2021 than in 2020.

Interestingly, demand for corporate credit picked up in the second half of the year. Companies peaked their heads out and started borrowing again, after individual borrowers kept the banks busy for the first half of the year.

Headline earnings in 2021 jumped 115% to R11.7 billion thanks to the extremely weak base year. The critical point is that headline earnings is 7% lower than 2019 levels, so we aren’t out of the woods yet. From a balance sheet perspective, the bank is stronger than pre-Covid levels on important metrics like common equity tier 1.

The improvement was driven by lower impairments, better margins and tight cost management. The investment in ETI in Africa also performed better in this period. The credit loss ratio of 83bps is within the through-the-cycle target of 60 – 100bps. Performance has also been supported by significant expense savings through improvements in technology.

Other important measures include growth in operating profit of 9%, a positive JAWS performance of 0.8% (the difference between income growth and expenses growth), an 11% increase in net asset value per share and an improvement in return on equity to 12.5%.

With an expectation of just 1.7% GDP growth in 2022, the easy part of the recovery is behind us. The bank will focus on increasing return on equity to over 15% and decreasing the cost-to-income ratio to below 54%.

For now, shareholders can hang their hats on 2021 HEPS of 2,410 cents and a full year dividend of 1,191 cents, of which 758 cents has been declared as the final dividend.

The net asset value is 20,493 cents, so the bank is now trading at a 5% premium to its book value. This is the reward given by the market when a bank generates attractive return on equity.