FirstRand recovers from 2020 pandemic and is set for growth
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FIRSTRAND, the group comprising FNB, RMB, WesBank and UK-based Aldermore, said normalised earnings recovered faster than expected in the year to June 30 enabling it to pay out a 80 percent higher full year dividend of 263 cents a share.
A final dividend of 153 cents was declared for the second half, compared with zero in the second half of 2020. Normalised earnings increased 54 percent to R26.6 billion, the results showed yesterday.
The growth was in line with other big banks - Absa Group grew headline earnings five-fold to R8.6bn, Standard Bank’s headline earnings were up 52 percent to R11.5bn, while Nedbank grew headline earnings 148 percent to R5.3bn in the six month period to June 30.
It should be borne in mind also that FirstRand’s strong results are compared with the 2020 financial year, the second half of which included the first three months of lockdown, which led to a much depressed performance by FirstRand due to increased impairments and reduced volumes.
Nevertheless, said chief executive Alan Pullinger in a presentation yesterday, the year’s pre-provision operating profit, which excludes impairments, rose 5 percent, which he described as a “pleasing outcome given the tough operating environment.“
There was customer growth across all businesses - the overall number up 5 percent to 10.48 million customers. Retail customers increased 4 percent to 7.52m, commercial customers by 10 percent to 1.13m, while the rest of Africa was up 5 percent to 1.83m. Online platform users increased by 6 percent to 16.1m.
Eighty percent of group earnings are derived from South Africa. FirstRand's normalised ROE (return on equity) of 18.4 percent was back within its targeted range of 18 percent to 22 percent.
Pullinger said the market, when assessing company results for 2021 generally compares the figures to 2019, pre-Covid 19, to get an indication of how quickly the company has recovered from the effects of the pandemic.
FirstRand’s 2019 earnings were its highest full year earnings, while the second half of 2021 had produced the highest ever earnings for that period, he said.
Pullinger said 2021’s annual earnings were just shy of 2019, so the 2019 earnings level “will clearly be breached in the next reporting period and hopefully we can do a little better than that.”
He said the group anticipated a modest consumer-led credit cycle to form in South Africa, the Rest of Africa businesses would benefit from the commodity cycle, but non-performing loans were expected to remain elevated in the UK where the government was withdrawing fiscal support.
He said although much of the earnings growth was attributed to decreased impairments raised for the impact of the pandemic, the figures also reflected strategies to strengthen the balance sheet.
The group had been prudent on origination and had focused on assisting customers to manage their debt load.
Advances growth in certain asset classes picked up momentum in the second half. Performances of the underlying businesses were driven by operational resilience and execution on specific growth strategies, he said.
FNB’s pre-tax profit increased 32 percent to R23.5bn and ROE improved to 33.3 percent. As a leading digital bank, FNB deposit growth remained strong with retail and commercial segments benefiting from active customer base growth of 5 percent.
RMB delivered a good operational performance, increasing pre-tax profits 24 percent to R10bn and delivering a ROE of 18.7 percent, mainly driven by its domestic markets business and rest of Africa activities.
WesBank’s pre-tax profits grew 43 percent to R1.7bn, mainly as a result of lower year-on-year impairments, but pre-provision operating profit was down 6 percent to R3.82bn as the vehicle financing unit faced headwinds in a shrunken vehicle market.
The UK operations, including Aldermore and MotoNovo, grew pre-tax profits 74 percent to £181 million. The business saw solid growth in deposits and new customers.
Pullinger said they expected there would be ongoing improvement in macroeconomic conditions. The unexpected speed, extent and breadth of FirstRand’s rebound had carried on into the new financial year, he said.
FirstRand’s share price fell 1.83 percent to R60.49 yesterday afternoon, but the price was nevertheless up 50.9 percent over a year.
BUSINESS REPORT ONLINE