Standard Bank Group Reports 14% Surge in Technology Costs Amid Cloud Migration

Standard Bank Group disclosed a notable 14% increase in software, cloud, and technology-related expenditures, attributing the uptick to investments in cloud migration, software licenses, and initiatives centered around personalization and AI-driven projects.

In its financial results for the year ending December 31, 2023, the bank revealed that costs in software, cloud, and technology-related domains, previously categorized as IT costs, surged from R10.8 billion to R12.4 billion within the same period. Additionally, staff costs rose by 14% year-on-year, reaching R5.9 billion from the previous R5.2 billion.

The full-year operating costs associated with IT, excluding amortization, depreciation, and other expenses, climbed to R18.3 billion, including staff costs. Amortization registered a 4% decline as the bank’s older, large-scale IT initiatives began to phase out.

Several factors contributed to the rise in technology-related expenses:

• The depreciation of the rand against the US dollar negatively impacted software licensing costs.
• Migration to cloud and software services led to demand-based system utilization, enhancing operational efficiency and scalability.
• Continued investments were made in bolstering the security and stability of the bank’s IT infrastructure.
• Standard Bank emphasized the robustness of its IT systems throughout the year, highlighting excellent system stability and availability.

Despite inflationary pressures and logistical challenges, the banking group reported a 27% surge in annual profit, buoyed by high-interest rates mitigating increasing bad loans. Full-year headline earnings reached R42.9 billion, with total net income growing by 20% to R177.6 billion, primarily driven by a 25% growth in net interest income and a 13% growth in non-interest revenue.

However, the bank noted challenges stemming from inflation, high interest rates, load shedding, and logistical bottlenecks impacting its retail and small business customers, leading to defaults. Credit impairment charges increased by 22% to R16.3 billion, resulting in a credit loss ratio of 98 basis points, nearing the upper range of the bank’s target of 100bps. Total provisions increased by 15% to R64 billion.

Standard Bank’s loans and advances expanded by 7% to R1.7 trillion, driven by robust corporate and sovereign lending, offsetting subdued retail lending growth and a decline in business lending.

The bank anticipates ongoing strain in personal and private banking sectors, expecting credit impairment charges to peak in the first half of 2024. Despite this, the credit loss ratio is projected to remain within target parameters but near the upper end of its range.