Non-performing Loans (NPLs) across FirstRand’s portfolio are improving and, backed by strong collections and origination strategies, helped lower the impairment charge for the South African financial services group – which also has operations in African and UK markets – by 48 percent to R7 billion, with full year normalised earnings springing up 23 percent to R32.7bn.
The group, which encompasses FNB, Wesbank and RMB, yesterday declared a 342 cents dividend for the full year to end June against 263 cents a year earlier. Additionally, FirstRand has written a pay cheque of 125 cents per share in special dividends for the same period.
NPLs across FirstRand’s retail, commercial, corporate and other portfolios decreased 16 percent on a year on year basis, with the non-productive loans ratio as a percentage of core lending advances declining to 3.88 percent.
This is attributable to “write-offs, the curing of paying NPLs, slower inflows given conservative origination strategies, strong collections and advances growth,” the financial services group said.
FirstRand managed lower credit costs during the period under review, driving up normalised earnings by 23 percent, reflecting post-pandemic recovery across its markets.
This yielded a stronger 20.6 percent base in return on equity (ROE), with net income after cost of capital for the group more than doubling to R10.1bn.
This showed that “earnings have fully recovered and are significantly above peak 2019 levels, and economic profits have more than doubled,” said CEO Alan Pullinger. “This resulted in a total distribution to shareholders of R26.2 billion (and) FirstRand’s performance reflects the quality of its operating businesses, FNB, RMB, WesBank and Aldermore.”
During the period under review, FNB and WesBank’s approach to retail origination was informed by internal and external data analysis of affordability indicators providing intelligence that “lower-risk, good-quality customers had the most capacity for credit”. At the same time, this demographic exhibited “a higher propensity to take up a broader range of financial services” products.
FirstRand is now investing in capital-light revenue operations in areas such as insurance, investment and asset management.
Across its Africa operations, the group is however focusing on organic growth, complemented where acquisitions in some instances, it said, highlight in-country customer and deposit franchises.
FirstRand’s Aldermore operation in the UK had stronger growth in pre-provision operating profit in pound terms, driven by “new business origination as well as a one-off £24 million (R484m) contribution from a refinement to the effective interest rate" model.
However, MotoNovo’s pre-provision operating profit for the period was impacted by an operational event relating to non-compliance with the UK Consumer Credit Act. This emanated from incorrectly issued notices of sums in arrears as a result of a system coding error.
“This event was identified during the Covid-19 pandemic period, but extends back a number of years and, as a result, certain interest and fees amounting to £23 million are required to be refunded to customers. The group has appropriately provided for this one-off event, including the operational costs and the consequential impact to impairments.”
In the outlook, FirstRand’s Africa portfolio is expected to show a steady improvement as inflation pressures abate, with most of the countries in the portfolio expected to benefit from the commodity cycle, despite a softening trend.
The UK economy is seen continuing to experience weakness mainly as a result of sharply increased cost-of-living pressures, with “a mild, inflation-induced recession” possible.
Overall, “FirstRand’s normalised ROE (return on equity) will remain well positioned in the target range of 18 percent to 22 percent in the 2023 financial year.”
BUSINESS REPORT