FNB says it is ready to respond to increasing competition by creating new digital features and redesigning its transactional banking products if it has to.
“Competition always comes at us either through price or innovation and we always respond to it. There’s no element of a competitive value proposition that is out there today that we can’t compete with. We are fortunate that we are in a good position to respond to anything that comes our way. We can quickly develop new features,” said FNB CEO Jacques Celliers.
Transactional banking products include current accounts, debit and cheque cards that people primarily use for everyday transactions. New entrants in the banking space, such as Tymebank and African Bank, want to disrupt this part of banking. Tymebank pointed out at its investor day in February that South African banks were pocketing too much from transactional products.
On Tuesday, FNB’s parent company, FirstRand posted a 7% increase in profit to R13.3bn for the six months to end December, driven mainly by a strong performance from FNB. FirstRand also owns corporate and investment bank RMB, vehicle financier WesBank and Aldermore, a UK-based retail bank focused on small and medium-sized enterprises.
FNB, which contributed 62% of FirstRand’s profit, grew its contribution by 13% to R8.7bn, thanks to significant growth in transactional revenues and unsecured personal loans, which surged 62% in the six months to December. Transactional banking makes up a lion’s share of FNB’s revenue. Profit from it grew by 17% to R8bn before tax.
FirstRand’s share price rallied the most in three weeks, closing 2.04% up at R63.39 and comfortably outperforming its major rivals and the JSE’s All Share Index.
Celliers said the bank is “not only a price player”, but at the lower end of the market where price pressure is intensifying, their fees are approaching zero and they offer services such as
e-wallet for free.
“We are very conscious of how competitive the market is becoming on interest rate and fee revenue streams. We think that we are very relevant and our results show record sales on all of our banking propositions. We are open to competition and we will respond where we feel we have to respond,” said Celliers.
He said FNB is confident a lot of growth is yet to come from its existing customer base from additional selling opportunities. In the six months to December, 40% of growth in FNB personal loans came from additional selling to existing customers and replacing other providers of credit to FNB’s customer base.
FNB’s success is important to FirstRand as it is “the biggest engine” to the group’s profit, FirstRand CEO Alan Pullinger said. In the period ended in December, FNB delivered a 42.2% return on shareholders’ equity, which Pullinger said was “probably the highest we’ve seen in the business”.
Although FNB remains the biggest contributor to FirstRand, the group is diversifying its income streams and Pullinger said they were expecting “a good story” in the UK following the acquisition of Aldermore in 2018.
Aldermore, which was included in the results for the first time, contributed R1.03bn to FirstRand’s earnings and was responsible for two percentage points of the total 7% growth in profit that the group reported. Its contribution was higher than that of vehicle financier, WesBank, which experienced competitive pressures and low vehicle sales. Investment unit RMB increased normalised net profit by 5% to R3.3bn.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.