Financial Director’s review

Details of our financial performance are contained in our 2017 financial results booklet and our 2017 consolidated and separate financial statements.

Overview of 20171

Our performance was satisfactory considering the sluggish macro backdrop. We have normalised our results to show the underlying performance, excluding the financial consequences of the Separation. Revenue growth was low, following modest balance sheet growth, regulatory pressures and a stronger rand. Consequently, our pre-provision profit declined 3%, despite keeping cost growth in line with inflation. Our revenue momentum improved in the second half of the year, particularly in Retail Banking in South Africa. Credit impairments improved across all our banking operations to drive headline earnings growth of 4%, or 7% in constant currency. Our return on equity was stable at 16.4%, while return on assets improved to 1.38%.

Our balance sheet remains solid, with strong capital levels and liquidity, and prudent provisioning. We were again capital generative and our common equity tier 1 ratio of 12.1% remained above Board targets, which allowed us to declare 4% higher ordinary dividend per share.

Our well-diversified portfolio delivers sustained benefits. Rest of Africa Banking enhanced our growth, with headline earnings increasing 7% or 24% in constant currency. Its return on equity improved to 16.6%. South Africa Banking earnings grew 4%, as Corporate and Investment Bank’s (CIB) increased 16% and RBB rose 1%, while Wealth, Investment Management and Insurance (WIMI) earnings declined 8%.

1 Where applicable, numbers presented have been normalised in accordance with the normalisation principles outlined above.

The Separation


The Separation will impact the Group’s financial results for the next few years, and so we provide normalised financial results to adjust for the Separation’s consequences and to better reflect our underlying performance. We will present normalised results for future periods where the financial impact of the Separation is considered material and use this view in our internal reporting, performance management and capital and dividend decisions. We continue to present International Financial Reporting Standards (IFRS)-compliant financial statements, as required by the Companies Act and the JSE Listings Requirements, as well as a reconciliation of these two views.

Our normalisation principles guide us in determining which material financial consequences to exclude. For capital, we exclude the GBP765m (R12.6bn) settlement as we believe this contribution will neutralise the capital and cash flow impact of Separation investments over time. For revenue, we exclude the endowment income from the contribution, together with any hedging gains or losses linked to Separation activities. Within costs, we exclude:

  • the Separation change spend, including depreciation, amortisation and impairments of any intangibles, as we invest in the systems required of a standalone institution;
  • the cost of rebranding, particularly in Rest of Africa;
  • the employee costs of resources working on the Separation;
  • the Transitional Services Agreement costs paid to Barclays PLC for various services provided during the Separation; and lastly
  • the consequential tax impact arising from all of these items.

We will not normalise for incremental running costs that build up during the Separation, as we intend to minimise that impact once the programme is completed.

Separation investment and spend to date

The R12.6bn contribution from Barclays PLC to enable Separation was largely recorded in equity. We received half of the R1bn for Separation-related costs in 2016 and the R8.3bn we received in June 2017 is mostly in recognition of the investments required in information technology, with rebranding being the next largest item. We also received R3.3bn to terminate the Master Services Agreement that governed services Barclays PLC provided to the Africa subsidiaries we acquired in 2013. Interest on this amount is about 0.3%, as it has been retained in pounds sterling. We earn endowment income on the unused portion invested in South Africa at circa 7% per year.

The funding is managed by our Group Treasury. At the end of 2017, R3.4bn was invested in South African Treasury bills, R2.2bn in liquid assets and R3bn in pounds sterling to settle the Transitional Services Agreement and other costs. We converted R1.8bn into US dollars, recognising that some of our investment outflows are expected to be in US dollars, and the rest has now been spent.

In 2017, we deducted R405m of Separation-related revenue, which was largely endowment income in the second half of the year.

After taxation, we normalised our headline earnings by R1.25bn for the Separation. We expect this quantum to increase significantly in the coming years, as the Separation activities gather momentum.

Two-thirds of the R1.9bn operating cost in our 2017 income statement was for Transitional Services Agreement costs and professional fees, with the remainder being largely related to employees dedicated to Separation activities. Major items were the human resource system re-platform, technology investments, a non-headline R326m impairment of software for Barclays.Net which we no longer use, and brand spend which includes removing ‘Member of Barclays’ in South Africa.

We expect to spend about 54% of the funds in South Africa, largely on technology in Corporate and Investment Bank and Group functions such as human resources, internal audit and risk. About 46% will be invested in Rest of Africa, mostly on rebranding and technology.

Retail and Business Banking South Africa and Wealth, Investment Management and Insurance, which together account for over 60% of our headline earnings, are least impacted by the Separation, while Corporate and Investment Bank and Rest of Africa are most impacted.

We closely monitor the execution of Separation-related projects and all the related costs. We continue to evaluate the return on investment for each project as the initial stages are completed and as end-state solutions are refined. We are aiming to transform rather than just replace our systems and platforms.

Factors influencing our performance

Weak macro backdrop

South Africa experienced low economic growth for the fifth consecutive year, with real GDP rising 1.3% after recovering from recession in early 2017. Agriculture rebounded after two years of drought. However, household and business confidence remained weak, due to economic and political uncertainty. The South African Reserve Bank reduced interest rates by 25 basis points in July, South Africa’s first rate cut in five years.

Economic growth marginally improved in a number of our key markets, supported by commodity price recovery, better weather and ongoing infrastructure investment. We expected real GDP to have grown 5.4% across our markets in 2017, with a mixed experience in different countries. Fiscal challenges still constrain several markets, more notably Ghana, Mozambique and Zambia. Rates were reduced in all our markets besides Kenya, with sizeable cuts in Ghana, Zambia and Tanzania.

Currency translations again impacted our results

The stronger rand reduced Rest of Africa Banking’s revenue growth by 11% and its earnings by 17%, although the drag was slightly lower in the second half of the year. This is a substantial swing from 2016, when rand weakness added 9% to its earnings. Customer loans and deposits were flat and down 3% respectively, on a spot exchange rate basis, but grew 9% and 6% respectively, in constant currency. The strong rand dampened Group headline earnings by 3% and revenue by 2%, compared to 2016 when it added 1% to both.

Regulatory changes

Regulatory change notably affected our operations, earnings and balance sheet again. Over the past three years, four regulatory changes cumulatively reduced our revenue by approximately R1.5bn – lower card interchange fees and National Credit Amendment Act lending caps in South Africa, Basel III liquidity requirements and the introduction of lending caps and deposit floors in Kenya.

The National Credit Regulator’s lower rate caps from May 2016 reduced our first half 2017 revenue by an additional R150m in South Africa. The lending caps and deposit floors introduced by the Central Bank of Kenya in 2016 cut R420m off our revenue there. While strengthening the sustainability of the sector, increased regulations made compliance more expensive. From a balance sheet perspective, further improving our strong liquidity position cost us an additional R200m in revenue.

A deposit insurance scheme is becoming more likely in South Africa; the South African Reserve Bank and National Treasury are working with the banking sector on implementation in the medium term. The new deposit scheme will be funded over time by the banking industry.

Effective from 1 January 2018, IFRS 9 (Financial Instruments) replaces International Accounting Standard 39 (IAS 39), which means banks will provision on an expected, rather than an incurred, basis. IFRS 9 will bring forward provisioning, although our charge should not change over the long run. However, provisioning is likely to become more volatile and harder to compare across banks. It is estimated that the increase on IAS 39 impairment stock (including contractual interest suspended) will be in the region of 30%, on a pre-tax basis.

IFRS 9 is expected to have a limited day 1 impact on our common equity tier 1 ratio, reducing it by no more than 35 basis points, which will be phased in over three years, or four balance sheet periods. The deduction will improve our return on equity.

1 Includes contractual interest suspended.

A diversified franchise

Our satisfactory results reiterated the importance of diversified operations, both by activity and geography. South Africa Banking accounts for three-quarters of Group earnings, and this is spread across Retail Banking, Business Banking and CIB. Retail Banking South Africa produced 40% of our total earnings; it remains well-diversified itself, given four large businesses with earnings ranging from R1.0bn to R2.5bn.

Improving Rest of Africa returns

Our Rest of Africa operations generated R3.0bn in earnings, which accounted for 18% of the total, and remains well-diversified across 10 countries. Particularly strong growth from Mozambique, Botswana, Zambia and Ghana outweighed lower earnings in Kenya, Uganda and the Seychelles.

Despite uneven economic growth across the Rest of Africa, our franchise continued to enhance Group growth. As mentioned, the strong rand was a noticeable drag, reducing Rest of Africa Banking’s 24% growth in constant currency to 7%, which still exceeded South Africa’s 4% higher earnings. In absolute terms, Rest of Africa Banking’s earnings have more than doubled since 2012.

Rest of Africa Banking’s return on equity improved to 16.6%, a strong improvement from the 12.5% when we acquired it in 2013. We believe it offers attractive growth prospects and improving medium-term returns. We expect to improve RBB’s high 72% cost-to-income ratio, and CIB remains a revenue opportunity, through selective lending, further growth in trading as financial markets deepen, and growing our corporate transactional component.

2 2017 financial results booklet available for download here.
3 Normalised.

The shape of our normalised income statement was as we guided. Revenue grew a modest 1%, which was below well contained 4% higher costs, resulting in 3% lower pre-provision profits. As expected, our management actions enabled credit impairments to fall 20% which contributed to 4% higher headline earnings.

Low revenue growth

Revenue growth slowed to 1%, partly reflecting the difficult macro backdrop. However, underlying revenue growth increased 5% after factoring in the impact of a stronger rand and regulatory changes, plus some one-off items in the 2016 base.

Net interest income increased 1% to R42.3bn, reflecting 1% higher average interest-bearing assets. Our net interest margin of 4.95% was flat for the first time in four years, having consistently widened from 4.46% in 2013. This was slightly better than we expected, as it improved in the second half of the year.

There were several moving parts within our margin. In South Africa our lending margin contracted by 5 basis points, due to the impact of National Credit Amendment Act caps on unsecured loans and the mix effect of stronger CIB loan growth. Conversely, our deposit margin widened, largely due to improved pricing and mix in Corporate.

Our structural hedge released R258m to the income statement, in line with its 2016 contribution. Our hedging strategy has performed well over the past decade and our intention is to maintain this strategic programme through cycles. Despite July’s rate cut, our capital and deposit endowment benefit increased by 3 basis points, as these balances grew faster than our interest bearing assets.

Having improved our Group margin by 10 basis points in 2016, Rest of Africa’s contribution to our net interest margin declined by 2 basis points in 2017, due to regulatory changes in Kenya, and the stronger rand. Nonetheless, Rest of Africa’s 7.18% net interest margin remains more than double the 3.37% in South Africa.

Our non-interest income rose 1% to R30.6bn. It has a high annuity component, with net fee and commission income accounting for 71% after growing 5%. South Africa Banking’s net fee and commission income increased 7%, its strongest underlying performance for some time, with solid growth from all divisions. Rest of Africa Banking declined 6% entirely due to the strong rand. Our total Markets income fell 9%, or 5% in constant currency, off a high base. Foreign exchange and equities fell noticeably in South Africa, and our Rest of Africa trading slowed in the second half of the year. We aim to grow our client foreign exchange flows in Business Banking and CIB, and are rebuilding our cash equities business. There was also a non-recurring R320m foreign currency translation gain in 2016, which reduced our non-interest income growth. Our revenue remains well-diversified, with non-interest income contributing 42% of the total.

Maintained growth in targeted areas

Although our overall revenue growth was limited, we improved momentum in several targeted areas in the second half of the year, particularly in annuity business. Corporate revenue grew 9% to R9.5bn, with solid growth in South Africa and the Rest of Africa. This represents almost 60% of CIB’s revenue and 13% of our Group top line. As mentioned, we see scope to grow our primary client base and transactional revenue here in the medium term. Corporate’s headline earnings grew 14% to R2.8bn or 18% of our total. In South Africa, Business Banking’s non-interest income increased 9% to R3.5bn excluding equities. We reduced this non-core equities portfolio 52% to a carrying value of R1.0bn during the year. We doubled fee income from our Investment Bank’s advisory business, as we executed key deals across the continent. Our commercial property finance revenue rose 40%, reflecting greater focus on this segment.

We are still the largest card acquirer in Africa, with 11% volume growth. Debit card volumes increased 9%. Growing our core retail fee income remains a priority in South Africa, despite continued migration from physical to digital channels. Non-interest income in our Transactional and Deposits segment grew 7% to R7.6bn, or 25% of Group total.

Improved second-half momentum

Our revenue momentum improved in the second half of the year, when our top line grew 3%, after declining 1% in the first half. Both lending and fee income growth accelerated, and there were noticeable improvements in RBB South Africa and WIMI. Our retail loan production in South Africa also increased strongly in the second half of the year, across mortgages, vehicle finance and personal loans.

Reduced pre-provision profits

Given our modest revenue growth, pre-provision profits declined 3%, or 1% in constant currency, despite containing costs. Better second half revenue momentum improved our pre-provision profit growth to 1% for the half, or 2% in constant currency.

Costs well managed while investing

Our operating expenses grew 4% to R41.4bn, resulting in a 56.8% cost-to-income ratio up from 55.2% in 2016. Costs increased 6% in constant currency, which was in line with inflation. Staff costs, the largest component, grew 5% and constituted 56% of the total. Headcount rose 1%, largely due to technology hires in South Africa. Our structural cost programmes improved our efficiency and enabled us to invest in strategic initiatives. Our total property-related costs declined 1%, as we further optimised corporate and branch costs. We reduced our communication costs a further 7%. Marketing spend grew 8% due to retail product campaigns and our Shared Growth initiative. The 19% growth in depreciation reflects investment in technology and optimisation of the corporate property portfolio and branch network. Excluding external consultants working on the Separation, our professional fees declined 2%. Our total IT spend was stable at R7.4bn, or 18% of Group costs. Amortisation of intangible assets grew 1% and remains relatively low at R650m.

Credit impairments improved noticeably

Our credit impairments decreased 20% to R7.0bn, improving our credit loss ratio to 87 basis points from 108 basis points. When compared to peers on a like-for-like basis, our credit charge was 83 basis points excluding R289m of collection costs.

Non-performing loans improved from 3.94% to 3.75% of gross loans and advances, due largely to a debt for equity swap in a particular CIB exposure in South Africa. Group-specific non-performing loan coverage remained strong at 43%, despite the reversal of this exposure which had high coverage. While our portfolio provisions to performing loans declined to 70 basis points from 79 basis points, this was model-driven. Our judgemental macroeconomic overlays increased slightly to R1.4bn, more than double our 2014 levels.

Unpacking the components, credit impairments fell across all our banking operations. South Africa Banking’s credit loss ratio fell to 80 basis points from 103 basis points. RBB’s 16% lower charge exceeded expectations, reflecting prudent new lending, enhanced collections and reduced store card sales. Arrears improved across most portfolios and our share of industry debt counselling accounts declined, remaining below our share of lending.

CIB South Africa’s credit costs dropped 44% off a high base that included a significant single-name charge. Its credit loss ratio normalised to 24 basis points, despite a R200m provision for a single exposure in the second half of the year.

Rest of Africa Banking’s credit loss ratio decreased to 134 basis points, as its charge fell 26% or 18% in constant currency. RBB was the main driver, dropping 30% due to rate cuts and improving macro conditions in some countries, and strengthened collections capabilities across the board.

Relatively high effective tax rate

Our taxation expense rose 7% to R6.3bn, raising the effective tax rate to 27.5%. The increase primarily reflects growth in non-tax deductible expenses and the non-recurring benefit to our 2016 tax rate of recognising a deferred tax asset. Our Group tax rate remains relatively high, in part due to Rest of Africa Banking’s 32.3% effective rate. We seek to optimise the tax position of our commercial operations, while ensuring a responsible approach to tax.

Returns remain solid

Our return on equity declined slightly to 16.4% from 16.6% – a resilient performance considering the tough operating environment. South Africa Banking’s return on regulatory capital was stable at 20.8%, while Rest of Africa Banking improved to 16.6% and WIMI’s return on equity declined to 20.1%. Our return on assets increased to 1.38%, the same as our previous peak in 2008, when our return on equity was 23.4% given greater leverage.

1 2017 financial results booklet available for download here.
2 Normalised.

Our total assets grew 6% to almost R1.2trn, as customer loans increased 4% and trading portfolio assets rose 37%. Total liabilities grew 6% to R1.1trn, with customer deposits up 2%, while deposits from banks and trading portfolio liabilities increased 27% and 35% respectively. Equity grew 6% to R108bn, and we paid R8.8bn in ordinary dividends and saw a R1.9bn reduction in our foreign currency translation reserve.

Modest balance sheet growth

Net loans and advances to customers grew 4% to R750bn, or 5% in constant currency. South African mortgages, our largest book at 30% of the total, declined slightly due to low industry growth and run-off of our back book. Excluding this book, our loans grew 6%. As we guided, our share of mortgage new business increased to 20% in December from 18% in December 2016, and new mortgage registrations grew 7%.

In South Africa, Vehicle and Asset Finance grew 8%, comfortably above the market due to strong growth in our Ford Financial Services joint venture and 18% higher production in the second half of the year. Card grew 3% excluding our declining store card portfolio, given noticeable growth in limit increases and new account sales. Personal Loans grew 6%, as production increased 22% in the second half of the year. Business Banking’s loans rose 7%, driven by 8% growth in commercial property finance and term loans. Our Agri loans grew 6% and remain well-diversified.

CIB South Africa’s loans increased 8% to R219bn, including 29% growth in commercial property finance and 6% higher term lending. It continues to offer attractive growth prospects, despite 18% compound annual growth since 2014, as we remain relatively underweight in term lending.

Rest of Africa Banking’s stable customer loans mask 9% growth in constant currency. It accounts for 10% of Group lending. CIB grew 14% in constant currency, exceeding RBB for the first time. The latter was impacted by high interest rates and reduced customer disposable income in some markets, plus liquidity constraints in Zambia and Kenya’s introduction of rate caps.

This demonstrates the improving momentum in our core lending franchise, which bodes well for the strong annuity component of our revenues going forward.

Our total customer deposits grew 2% to R690bn. The largest component, South African retail deposits, increased 6% although this was below market growth and came mostly in investment products. Business Banking remains a strong deposit gatherer, with growth improving to 4% and margins stable. CIB’s deposits grew 2%, which was below expectation.

Rest of Africa Banking’s deposits grew 6% in constant currency. RBB’s solid growth in new-to-bank customers increased current account deposits 10%. Excluding reclassifications, CIB’s deposits grew 7% in constant currency, as it continues to target primary customer relationships.

Strong capital and liquidity

Our Group risk-weighted assets grew 5% to R737bn, broadly in line with loan and asset growth. We remain capital generative, with earnings adding 2.2% to our common equity tier 1 ratio. Paying R9.8bn in total dividends reduced our ratio by 1.4%, while the R1.9bn decline in our foreign currency reserve was offset by the risk-weighted asset reduction of a stronger rand. All told, our normalised common equity tier 1 ratio remained at 12.1%, which is well above the 11.5% top end of our Board target range. Group total capital ratio was stable and strong at 14.9%, which falls within our Board target range.

Our liquidity profile is healthy, with liquid assets and other sources of liquidity growing 11% to R213bn, which equates to 31% of customer deposits.

The Group’s three-month average liquidity coverage ratio for the fourth quarter of 2017 was 107.5%, comfortably above the minimum hurdle of 80% during 2017. From 1 January 2018, net stable funding ratios are required to exceed 100%, and ours is already above the minimum.

Segmental performance

1 Excludes Group Centre (Head Office, Treasury and other operations in South Africa).

Our segmental disclosure has changed to reflect our leadership structure and the way in which we run our businesses along geographic rather than divisional lines.

South Africa Banking


Headline earnings grew 4% to R12.2bn, due to 20% lower credit impairments, as pre-provision profits declined 2% to R23.2bn. Revenue grew 2% to R53.3bn, with non-interest income increasing 4%. Costs grew 6% to R30.1bn, resulting in a cost-to-income ratio of 56.4%, up from 54.4% in 2016. Credit loss ratio fell to 0.80% from 1.03%, as all three divisions improved. South Africa Banking generated a return on regulatory capital of 20.8% and constituted 75% of total normalised headline earnings excluding the Group centre.

RBB South Africa

Headline earnings increased 1% to R8.9bn, largely due to 16% lower credit impairments. Non-interest income grew 5%, while net interest income was flat due to margin compression. Operating expenses rose 7%, reflecting continued investment in systems and front-line employees. RBB South Africa accounted for 54% of our normalised headline earnings excluding the Group centre, and generated a 23.5% return on regulatory capital.

Retail Banking South Africa

Headline earnings were unchanged at R6.5bn: a 3% decline in pre-provision profits was offset by 12% lower credit impairments. However, headline earnings grew 12% in the second half of the year, as new loan production and revenue momentum improved. Although Transactional and Deposits’ non-interest income grew 7%, higher credit impairments and 9% cost growth resulted in earnings falling 8% to R2.5bn. Home Loans’ earnings rose 5% to R1.7bn, reflecting cost containment, strong non-interest income growth and 25% lower credit impairments. Card earnings grew 3% to R1.6bn, largely due to lower credit impairments and growth in acquiring revenue. Vehicle and Asset Finance earnings grew 20% to R1.0bn, on 19% lower credit impairments and solid non-interest income and loan growth. Lower costs drove the 3% rise in Personal Loans earnings to R436m. Retail Banking South Africa accounted for 40% of our normalised headline earnings excluding the Group centre and generated a 23.1% return on regulatory capital.

Business Banking South Africa

Headline earnings increased 1% to R2.3bn, as credit impairments dropped 53%. Revenue growth improved in the second half of the year, but pre-provision profits declined as costs grew 11% reflecting continued investment in front-line employees and systems. Non-interest income rose 9% excluding equities. Business Banking South Africa generated 14% of overall normalised headline earnings excluding the Group centre and produced a very strong 27.7% return on regulatory capital.

CIB South Africa

Headline earnings increased 16% to R3.3bn, largely due to a 44% reduction in credit impairments off a high base. Pre-provision profits grew 5%, as 3% revenue growth exceeded 2% higher costs. Corporate earnings grew 8% to R1.1bn as 9% revenue growth produced 15% higher pre-provision profits. Investment Bank earnings increased 22% to R2.2bn, largely due to 60% lower credit impairments and lower costs. CIB South Africa contributed 20% of our total normalised headline earnings excluding the Group centre and generated a 16.0% return on regulatory capital.

Rest of Africa Banking


Headline earnings grew 7%, or 24% in constant currency, to R3.0bn, due to positive constant currency operating JAWS and 26% lower credit impairments. Pre-provision profits increased 9% in constant currency. Revenue fell 3% to R15.6bn, masking 8% growth in constant currency. While costs fell 2% to R9bn, they rose 7% in constant currency, resulting in a 57.6% cost-to-income ratio. Credit impairments fell 26% to R1.3bn, resulting in a 1.34% credit loss ratio from 1.62%. Rest of Africa Banking accounted for 18% of total normalised headline earnings excluding the Group centre and generated a 16.6% return on regulatory capital.

RBB Rest of Africa

Headline earnings fell 6% to R670m, despite increasing 19% in constant currency. Constant currency revenue growth of 2% reflected margin compression due to regulatory changes in Kenya. Costs grew 5% in constant currency, resulting in a 72.4% cost-to-income ratio, which remains a large opportunity to drive further efficiencies going forward. Credit impairments decreased 23% in constant currency, improving its credit loss ratio to 2.22% from 2.92%. RBB Rest of Africa contributed 4% of our total normalised headline earnings excluding the Group centre.

CIB Rest of Africa

Headline earnings grew 8% to R2.3bn, or 21% in constant currency. Revenue increased 7% to exceed 3% higher costs. These grew 18% and 12% in constant currency respectively to produce a 36.5% cost-to-income ratio. Pre-provision profits increased 9%. Credit impairments fell 3% in constant currency. Corporate earnings grew 18%, or 32% in constant currency to R1.7bn. The strong rand reduced Investment Bank’s earnings, which declined 10% to R0.7bn, despite rising 2% in constant currency. CIB Rest of Africa contributed 14% of our total normalised headline earnings excluding the Group centre.

Wealth, Investment Management and Insurance


Headline earnings decreased 8% to R1.2bn, while continuing business lines declined 10%. South African earnings from continuing lines decreased 17% to R1.1bn, and Rest of Africa returned to profitability, with earnings of R19m. Gross operating income from continuing lines grew 2% to R6.2bn and costs rose 3% to R3.3bn. Life Insurance earnings fell 9% due to the unwinding of a deferred tax asset in the prior year. Despite strong 16% growth in assets under management to R335bn, WIM’s earnings dropped 24% due solely to credit impairments of R100m on a single Wealth client. Short-term Insurance earnings grew 2%, despite experiencing significantly higher catastrophe event claims. Excluding these events, WIMI’s underwriting margin in South Africa improved to 8.7%. Its return on equity was 20.1%, and it generated 7% of our total earnings excluding the Group centre.

Performance outlook

In South Africa, we expect a modest improvement in real GDP growth to 1.4% in 2018, with upside potential from fixed investments, a rebound in confidence and strong global growth, although fiscal consolidation remains a concern, and there is downside risk for credit ratings. We believe the South African Reserve Bank will keep interest rates on hold for some time.

We forecast slightly better GDP growth of 5.8% in our markets in the Rest of Africa, with further monetary policy easing in a number of countries. The rand’s exchange rate could weigh on our Rest of Africa reported growth again in 2018.

Given these assumptions, and excluding major political, macroeconomic or regulatory developments, we expect our loan and deposit growth to improve in 2018. We again see stronger loan growth from Rest of Africa in constant currency and CIB than Retail South Africa. Our net interest margin is likely to decline slightly this year, due to rate cuts in the Rest of Africa, regulatory costs and mix effects. Normalised costs will remain well controlled, and our operating JAWS should improve from last year’s. While IFRS 9 could increase volatility, we expect a stable credit loss ratio. Our common equity tier 1 ratio is likely to remain above Board targets, which will allow us to maintain our current dividend cover. Lastly, our normalised return on equity should improve slightly in 2018.