JOHANNESBURG (miningweekly.com) – Capital and liquidity requirements across all the markets in which it operates are continuing to be met, Standard Bank Group FD Dr Arno Daehnke said during an investor call.

Daehnke disclosed that the bank was benefitting from building up increased capital levels over the last few years in line with Basel requirements. As at December 31, the group had a total capital adequacy ratio of 16.7% and R427-billion worth of contingent liquidity.

“We would argue strenuously that this crisis is still very much a health crisis. It’s not yet a liquidity or a solvency crisis,” Standard Bank Group CE Sim Tshabalala commented during question time.

Tshabalala said in his preamble that it was clear from the conversations with executives in mining, oil and gas, retail, services, logistics, travel, food and beverages, telecoms, pharmaceuticals and hospitals, that extremely difficult economic times were on their way in the short term.

“We’re seeing reduced revenues for many types of businesses and sudden and immense pressures on the price of many assets. As Africa’s largest bank by assets, we’re very much at the centre of the economy and it’s our duty to do everything we can to help our clients to keep their businesses and their lives on track,” Tshabalala added.

The bank’s small-enterprise, low-income and student clients will be benefitting from an automatic three-month payment holiday from April 1 to June 30, equating to approximately R35-billion.

Daehnke said student accounts would be charged zero interest and zero fees over the period, while the interest and fees for the other accounts would be capitalised to the loan balance.

As could be expected in times of crisis, the bank was in regular contact with the South African Reserve Bank (SARB), which Daehnke said was considering special directives on capital adequacy, loan restructuring and liquidity under Basel III, the international regulatory accord that introduced a set of reforms designed to improve the regulation, supervision and risk management within the banking sector. Basel III is part of the continuous effort to enhance the banking regulatory framework.

“While doing everything we can to keep our staff and clients safe, and to flatten the curve, we’ve also taken all the necessary steps to ensure that our essential services will be able to function,” said Tshabalala.

“Our teams are ready to serve our individual business and corporate clients as usual. We took action first in early January in our Beijing office. Some of our colleagues returned home while others converted to working from home.

“Since then, we’ve triggered business continuity plans across all our countries of operation and I’m please to report that they are working well.

“In early March, we suspended all cross-border business travel and strongly discouraged personal travel.

“We implemented the World Health Organisation guidelines in terms of physical distancing and other infection prevention behaviour and we have actively promoted and supported working from home wherever possible.

“We’ve broadly split our workforce into those who can work from home and those who need to be physically in the office to provide essential services and support. For those who can, who are required to work from home, they are doing so,” Tshabalala said.

Standard Bank’s information technology (IT) personnel are said to have worked tirelessly to leverage IT tools, particularly Microsoft Office 365, to enable staff to connect, collaborate and meet online.

“This is well embedded and working incredibly well. Last week, we had over 14 500 teams' meetings in just one day and connected with colleagues across 28 countries and 98 cities,” Tshabalala disclosed during the investor call covered by Mining Weekly.

A number of steps have also been taken to protect bank personnel engaged in essential services, which requires them to come in to work.

“We’ve taken a number of steps to protect them, including splitting teams, restricting the number of people in our branches, and insisting on appropriate physical distancing as well as the distributing of sanitiser across our branches, call centres and offices.

“I know from firsthand customer reports that our people continue to assist our customers with empathy, efficiency and excellence,” he said.

The bank is encouraging its clients to minimise visits to branches and to rather make use of digital channels, such as Internet banking, mobile banking apps, automated teller machines and telephone banking facilities.

In addition, a number of protocols have been implemented to ease the burden on employees who are having to cope with the practicalities of home and work in lockdown and those on special leave in self-quarantine and self-isolation.

CORPORATE CLIENTS

Tshabalala said the bank’s client service teams were in regular contact with its corporate clients in each of the countries in which it operated, on the continent as well as elsewhere across the world.

“We’ll continue to engage with each of our clients based on their individual needs on a client-by-client basis.

“We have also encouraged all our clients to contact us as soon as is possible if they are concerned that they are facing or will face financial distress.

“We’re committed to doing everything in our power to assist.

“Importantly, since our clients are also depositors, savers and investors, people paying insurance premiums and people needing to claim, the normal credit underwriting and general risk disciplines will continue to apply.

“I’m confident that Standard Bank is taking all the appropriate steps to maintain business continuity in order to continue to serve our clients across all the markets in which we operate.

“The private sector has a vital role to play in supporting the government and doing what we can to contain the spread of Covid-19 and we must all play our part to protect the most vulnerable in our society,” he said.

To this end, in South Africa, the bank had donated R10-million to several nongovernmental organisations working closely with the South African government to combat the spread of Covid-19.

The funding would go towards securing supplies of sanitiser, water sachets, soap, gloves, masks, testing kits and towards testing and quarantine facilities.

Daehnke said that based on the SARB and International Financial Reporting Standards (IFRS) guidelines, the provision of a payment holiday to a specific subset of borrowers alone should not trigger a move from Stage One to Stage Two.

In 2014, the International Accounting Standards  (IAS) board published the complete version of IFRS 9 financial instruments, which replace most of the former guidance in IAS 39.

“Secondly, and importantly, both to the uncertainty of the effects of Covid-19 and the significant government support that is being undertaken, it should be taken into account in the IFRS 9 modelling,” Daehnke added.

Basel III regulations include a temporary reduction of the liquidity coverage ratio requirements to 80% from 100%, a reduction of certain capital requirements to 0% and the treatment of restructures under directive 7.

“The prudential authority allows banks to draw against the capital conservation buffer. However, this would come with restrictions.

“In addition, the SARB has implemented various liquidity measures which have assisted the market. As one would expect, we have seen drawdowns and requests for drawdowns from corporate clients against existing facilities.

“In addition to requests for further credit extensions, as clients look to access additional funds that they may require to accommodate cash flow pressures arising from Covid-19, and exacerbated by lockdowns across multiple jurisdictions,” Daehnke said.

On the downgrade by Moody’s last Friday, he said South Africa’s downgrade to sub-investment grade had been largely priced in.

“We’re of the view that concerns around the downgrade have largely been overtaken by those related to the Covid-19 pandemic.

“We have been asked about the capital and risk quoted asset impacts of the sovereign downgrade. The downgrade alone does not trigger an overnight step change in risk quoted assets. Ratings agency actions are one of a number of inputs in our modelling.

“Our risk is rated according to our internal models, which had already taken into account the sub-investment grade rating by rating agencies,” he said.

Standard Bank Group and the Standard Bank of South Africa were expected to be similarly downgraded.

On guidance, stock exchange news service (SENS) notice on Tuesday withdrew the bank’s outlook and guidance provided as part of the 2019 financial results announcement.

“While the Covid-19 pandemic continues to unfold and countries respond to this crisis in different ways, there is a high degree of uncertainty regarding the impact it will have on our financial performance in the 2020 financial year.

“Accordingly, the outlook and guidance we provided at the time of releasing our results a few weeks ago has been withdrawn.

“Turning to dividends, as part of our 2019 results announcement, we noted that the board had approved a final dividend of 540c a share. It is currently our intention to pay the dividend on the payment date. The last day to trade is April 21. It is too early to comment on dividends in respect of the 2020 financial year.

“At the appropriate time, we’ll follow our normal processes of reviewing our capital and liquidity position, as well as our expected future business means, having taken that decision.

“Lastly, we’ll provide the markets with our normal first-quarter updates via SENS in late April,” Daehnken concluded.