Unlisted companies significant growth drivers

Head of commercial banking at Standard Bank, Karl Götte, describes his division – which services businesses that fall between SMMEs and large, listed corporates – as a “sweet spot”.

“These businesses are fairly established and have been through a few cycles. We estimate that they contribute 15% to GDP and generally grow twice as fast as the overall economy,” Götte said, noting that businesses falling into this category have turnover of between R300 million and R1.3 billion.

Some of Standard Bank’s better-known commercial clients include large agricultural co-operatives, GWK and VKB Agriculture, as well as Botswana-based supermarket chain, Choppies, which recently listed on the JSE.

Commercial enterprises of this size come with fairly unique challenges, Götte told Moneyweb on Wednesday in an interview at Standard Bank’s Johannesburg headquarters.

A number of them are owner-run, for instance, grappling with succession planning and the transfer of knowledge to the next generation. Rapid business growth also means transitioning from a fairly informal operating environment to having to set up more formal governance and business processes, he said.

Götte said Standard Bank was not seeing a large number of layoffs “at this stage” in the sector, which is a key job creator. Where necessary, businesses were instead looking at reskilling staff to work in more profitable lines, he said.

The digital revolution is a considerable challenge facing these businesses, he added, in that they don’t necessarily have whole innovation teams helping them keep abreast of technological changes, while disruptive digital competitors cannot be ignored.

Businesses that don’t have an online presence, for example, might not even get feet through the door as customers increasingly do online research before making purchasing decisions, Götte explained.

Over the past year, Standard Bank’s commercial banking unit has had “decent growth in the balance sheet”, Götte said. He would not be drawn on any numbers as the bank is in a closed period ahead of issuing annual financial results next month.

On whether its clients were investing to grow their businesses, Götte said that in current economic conditions – namely low growth, exchange rate uncertainty and rising interest rates – companies are more likely to hold onto cash and be circumspect about making large investments, particularly when there may be little demand from cash-strapped customers for new products and rising interest rates mean more expensive debt.

“There are some big deals coming through,” Götte countered, but admitted that Standard Bank has seen pressure on loan growth as a result of the slowing economy and that it was important that credit extension remain “prudent” to avoid an uptick in bad debts.

Earlier this week, Moody’s Investors Service confirmed what a number of banks analysts have already flagged: that South African banks’ earnings will come under pressure this year in a rising interest rate cycle, as credit losses become a headwind.

Götte said that Standard Bank hoped to increase its profitability by helping its GDP-boosting clients grow. “If GDP growth is lousy it’s unlikely that businesses will do well. We want to grow with our clients. Sim [Tshabalala, Standard Bank CEO] is driving this hard in the organisation,” Götte said.\

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