Segmental performance

Our earnings remain well diversified by both division and individual product lines.

In this section we present segments on the historical operating model. A detailed analysis for each of these segments can be found in our 2016 financial results booklet.

From 2017, we will report against our new segments.

Retail and Business Banking

RBB’s earnings declined 3% to R9.3bn, or 59% of our earnings, excluding the Group centre. Pre-provision profits increased 5%, although 6% revenue growth lagged 7% cost growth, as RBB invested in technology. Balance sheet growth was limited, with loans and deposits both flat. Credit impairments grew 21%, increasing its credit loss ratio to 1.46%. RBB’s return on regulatory capital decreased slightly to 21.3%.

Retail Banking South Africa

Headline earnings declined 4% to R6.4bn, largely due to 14% higher credit impairments, since pre-provision profits grew 1%. Transactional and Deposits earnings increased 1% to R2.7bn, given 12% higher net interest income on 7% deposit growth. Despite improved margins, Home Loans’ earnings decreased 8% to R1 602m due to 15% higher costs and a 34% increase in credit impairments (off a low base). Card earnings increased 3% to R1.7bn, given 11% non-interest income growth and flat credit impairments. Vehicle and Asset Finance earnings declined 25% to R800m, as margin pressure saw its revenue reduce and credit impairments rose 23%. Personal Loans earnings grew 10% to R384m, reflecting 16% higher net interest income. Losses in the ‘Other’ segment decreased 1% to R741m, given lower costs. Retail Banking South Africa accounted for 41% of total earnings, excluding the Group centre.

Business Banking South Africa

Headline earnings grew 1% to R2.1bn, given 5% higher pre-provision profits. Loan growth improved to 9%, increasing its revenue growth to 6%, in line with the rise in costs, resulting in a flat 61% cost-to-income ratio. Deposits declined 1%, largely due to the industry-wide reduction in public sector funds. Credit impairments grew 7% although its credit loss ratio was largely unchanged at 0.86%. Business Banking South Africa generated 14% of overall earnings, excluding the Group centre.

Retail and Business Banking Rest of Africa

Headline earnings declined 3% or 15% in constant currency to R769m, despite 23% higher pre-provision profits. Revenue grew 15%, or 9% in constant currency, with net interest income rising 19% as its net interest margin improved to 9.06%. Costs grew 11% or 7% in constant currency, so its cost-to-income ratio decreased to 67.0%. However, credit impairments grew 73% due to higher personal loan and portfolio provisions, with coverage for performing loans almost doubling. Loans and deposits fell 11% and 12% respectively, despite both growing 2% in constant currency. RBB Rest of Africa contributed 5% of total earnings, excluding the Group centre.

Corporate and Investment Bank

Headline earnings rose 27% to above R5bn for the first time, as pre-provision profits increased 34%. CIB earnings grew 18% in South Africa and 43% in the Rest of Africa, or 35% in constant currency. CIB in the Rest of Africa accounts for 44% of CIB’s earnings from 29% in 2013. Revenue grew 17%, with Rest of Africa increasing 24% and South Africa 13%. Markets revenue rose 25% to R5.1bn, with Rest of Africa up 26% and South Africa 25%, as fixed income and credit grew 51% and foreign exchange and commodities 21%.

Credit impairments rose 77% due to a single name in the first half and increased portfolio provisions. Costs increased 2%, despite continuing to invest in technology. Corporate earnings grew 44% to R2.7bn, as 18% revenue growth exceeded 6% higher costs and credit impairments declined 8%. Investment Bank earnings rose 13% to R2.4bn, as the 16% revenue growth and 2% lower costs, as credit impairments increased 228%. CIB’s loan growth slowed to 7%, in part due to the strong rand, although average balances were 23% higher. CIB’s return on regulatory capital improved to 19.9%, with strong returns in the Rest of Africa. It contributed 32% of total earnings, excluding the Group centre.

Wealth, Investment Management and Insurance

Headline earnings declined 4% to R1.4bn, with continuing business lines down 1%. However, South African earnings from continuing business lines grew 11% to R1.5bn, with Life Insurance up 19%, due to 10% net premium income growth and 43% higher income from shareholder funds. Short-term Insurance in South Africa grew 17%, with a 4.3% underwriting margin and well contained costs, while reinsurance limited the rise in claims.

Wealth and Investments’ earnings grew 5%, with assets under management increasing 5% to R288bn on R13bn of net inflows. Rest of Africa lost R112m from a profit of R49m, given higher reserving, increased claims and substantially higher new business costs due to integrating First Assurance in Kenya and investing in our expansion strategy. WIMI’s return on equity remains attractive at 23.9% and it generated 9% of total earnings, excluding the Group centre.