WATCH: FirstRand seeking rapid economic reform
Chief executive Alan Pullinger said that the country needed urgent economic reform as weak domestic demand and low income growth would continue to weigh on real gross domestic product (GDP) growth and core inflation in the coming year. He said the group expected a low 0.3 percent GDP growth rate for 2019 against 0.6 percent economic growth forecast by the South African Reserve Bank.
He said the risk of further sovereign rating downgrades would remain elevated if the government did not restructure some of its assets as the economy was constrained by high indebtedness, inefficiency of state-owned enterprises, and low private sector investment.
“Crucially, the private sector and the public sectors do not differ on the desired outcomes of these structural reforms. It's in the how that we remain quite wide apart,” Pullinger said.
“The South African fiscus does not have a revenue problem. Businesses and individuals are already highly taxed. The fiscus sit with an expenditure problem. As a consequence of that, expenditure needs to be cut back, and each rand spent must generate both a social and an economic return. Right now, there is simply too much expenditure that delivers neither.”
The bank reported a 6percent hike in normalised earnings to R27.9 billion for the year to end June. FirstRand shares closed 1.67 percent higher at R61 on the JSE yesterday
It said FNB continued to be the crown jewel, contributing R17.6bn to the group, driven by healthy non-interest revenue growth on the back of ongoing customer gains and increased transactional volumes.
FirstRand’s UK specialist bank, Aldermore, also performed well, due to an increase in the retail portfolio, given strong book growth in buy-to-let and owner-occupied residential mortgages over the last two financial years.
The group said its performance was impacted year-on-year by the non-repeat of significant private equity realisations in the second half of 2018.
WesBank’s normalised earnings were also down 2 percent as a result of difficult trading conditions during the year. Diluted headline earnings per share, however, rose 5 percent to 497.2 cents from 472.7c the previous year, with the bank declaring a gross cash dividend of 291c per ordinary share.
Pullinger said the group expected the domestic economic activity to remain under pressure for the foreseeable future.
He said the private sector, either directly by business, or through bodies like Business Unity SA, Business Leadership SA, Banking Association of SA, had offered many ideas and solutions to government.
“But sadly the response has been to fall back on status solutions, solutions that take the government's role way beyond that of simply creating an enabling environment,” he said.
“Crowding in the private sector will require some ideological pragmatism and it will require being open to restructuring state assets, privatisations, public-private partnerships and the like, models that have proven particularly effective in developing nations like this one.”
Pullinger said that the solutions crowded out the private sector and deprived the country of its capacity and scale.
"Even more worrying, status solutions struggle to attract market capital, and so they are forced to look at other areas to gather resources, and they quickly get to prescribed assets. And the target there is often pension fund assets.”