FirstRand benefits from cautious growth of credit book after pandemic

A customer enters an FNB branch in Johannesburg. Picture: File

A customer enters an FNB branch in Johannesburg. Picture: File

Published Mar 1, 2024


FirstRand’s management expected the financial services group to generate second-half earnings much in line with that of the first half, CEO Alan Pullinger said.

Yesterday, the group reported a 6% increase in normalised earnings to R19.1 billion for the six months to December 31, driven by strong top-line growth, particularly net interest income (NII).

“We are pleased, on the balance sheet we have seen good growth in advances and deposits, at about 11% for each, which is a decent clip for an economy that is where it is right now,” Pullinger said in a telephone interview.

He said their strategy of being more circumspect in lending coming out of the Covid pandemic had stood them in good stead, compared with their peers that had “charged ahead,” as this had given the group credit capacity to grow its lending currently, while FirstRand’s peers were now, in the higher interest rate environment, having to deal with much higher credit losses.

The growth in NII, combined with capital generation, enabled an interim dividend of 200 cents, a 6% increase from the previous year, The dividend policy was unlikely to change in the second half.

Pullinger said they expected the macroeconomic environment in the jurisdictions where they operate to remain largely unchanged, with high interest rates and persistent elevated inflation.

South African consumers were facing tough times financially, and they would benefit from lower interest rates and better pay increases, he said.

The group expected softer overall advances growth in the second half and, given the current high base, deposit growth would likely slow as households drew down on savings, although commercial deposit gathering was expected to remain resilient, he said.

Muted growth in FNB’s fee and commission income was due to sub-inflation fee increases across both retail and commercial accounts.

In addition, with the introduction of PayShap, FNB reviewed its pricing structures for low-value real-time payments, and decided to reduce all related fees and absorb the entire impact of the repricing in one financial year (to 30 June 2024).

“Although the impact of fee reductions will continue in the second half, NIR will benefit from stronger growth in fee and commission income, supported by ongoing customer growth and activity. The first two months of the second half are already performing better than the comparative period,” said Pullinger.

He said they expected the group first-half credit performance to be similar in the second half, but cost growth will trend lower.

During the interim period, “once again, the pleasing credit performance stands out, with the credit loss ratio well below the midpoint of the group’s through-the-cycle range”.

Net asset value of R190bn was up 14% period-on-period. The cost-to-income ratio fell to 49.9% from 50.3%.

Further deposit franchise growth was due to a focus on better savings propositions for customers.

Growth in certain retail advances portfolios had slowed given customer affordability pressures but, on a period-on-period basis, still delivered healthy increases, with retail advances up 7% at FNB and 11% at WesBank.

Advances growth from FNB’s commercial segment (+10%), RMB (+14%) and FNB broader Africa (+9%), reflected the focus on sectors showing above-cycle growth and which were expected to perform well even in an inflationary and a high interest rate environment.

The 4% decline in UK operations’ advances (in pound terms) reflected the tough inflationary and interest rate environment, despite resilient new business production from specialist buy-to-let.

In rand terms, UK operations’ advances increased 11% due to the weakening of the rand.

The retail and commercial segments of FNB in particular registered good growth in deposits off a high base.

RMB’s growth (+9%) was achieved despite a mixed performance from its markets business and the non-repeat of a large private equity realisation in the previous period.

There was, however, good growth in private equity annuity income (+15%) and knowledge-based fee income grew strongly (+25%).

The group’s credit loss ratio was well below the midpoint of the through-the-cycle range of 80 bps – 110 bps.