Geneva - FirstRand, Africa’s biggest bank by market value, said unsecured lending was the least of its issues and criticised ratings companies for seeing failed African Bank Investment Ltd as a proxy for the industry.
“This seems to be behind the curve,” chief executive Sizwe Nxasana said in an October 7 interview at the Four Seasons Hotel in Geneva, where he was meeting Swiss private banks and other investors.
“It’s completely overplayed. African Bank has African Bank issues and isn’t a proxy for what’s happening in the broader unsecured-lending business.”
Moody’s Investors Service cut the local-currency deposit ratings of South Africa’s four biggest lenders, including FirstRand and Barclays’s local banking unit, and kept them on review for more reductions nine days after the central bank placed African Bank under curatorship on August 10.
The rescue of the nation’s largest unsecured lender included a 10 percent impairment of African Bank’s senior debt, a move that Moody’s said suggested the South African authorities won’t fully protect creditors in the case of a bank failure.
Nxasana said FirstRand, which last month reported a 24 percent increase in full-year profit to 18.4 billion rand, has more than adequately provided for an expected increase in non-performing loans as the economy slows.
“It’s the least of our issues,” the chief executive said.
“Our unsecured lending at the bottom end of the market went backwards by 2 percent, but in the middle income it grew really strongly and it’s really good-quality business. Obviously, macros do matter in banking and we face headwinds like everyone else.”
Slowing Growth
FirstRand has less than 30 billion rand of unsecured lending out of a total loan book of almost 680 billion rand, Nxasana said.
With the South African Reserve Bank predicting economic growth will slow to 1.5 percent this year, the company’s Wesbank unit, which provides vehicle finance, will also see bad loans increase, he said.
“In an environment where growth is slowing down, the growth in profitability of that business will slow down naturally,” Nxasana said.
“But, it’s a highly profitable business.”
While South Africa has a range of problems to address from inflation and unemployment to “tepid growth,” the government’s National Development Plan provides a framework for progress, said Nxasana.
Former Finance Minister Pravin Gordhan’s February budget-spending cuts before the general election in May and Lesetja Kganyago’s appointment this month as Reserve Bank governor set benchmarks to follow.
Courageous Leadership
“We need more of that kind of courageous leadership as well as fixing all the structural issues we face,” said Nxasana, commenting on Gordhan.
“Just the appointment of the new central bank governor is an indication that there are still things we get right as a country.”
While FirstRand pulled out of the bidding to buy Mainstreet Bank, it’s still looking for “bolt-on acquisitions” in Nigeria, said Nxasana.
The lender, which said last month it had set aside 10 billion rand for expansion across the continent, needs a retail franchise in the West African country, he said.
“We can’t have a complete financial-services offering with the license that we have and we want to create a mini-FirstRand there, which means we have to be in retail at some point,” Nxasana said.
“Our strategy has been very successful and we’re sticking to our knitting.” - Bloomberg News