FirstRand, SA’s biggest bank by market value, said half-year profit jumped 41% as SA’s economic recovery saw impairment charges fall from their pandemic levels, allowing the company to unwind credit provisioning for Covid-19 related losses.
The owner of FNB, WesBank and Rand Merchant Bank (RMB) said profit for the six-months to end-December 2021 climbed to R16.65bn, up from R11.84bn in the corresponding period the previous year. Basic and diluted normalised headline earnings per share (Heps) rose 43% to 280.6c, up from 196.8c in the previous half-year period.
That took FirstRand’s normalised headline earnings per share, a measure of profitability before the effect of one-off items, to a level that was 12.4% above the 249.7c a share it reported for the six-months to end-December 2019, its last pre-pandemic interim period. That allowed the board to declare a gross cash dividend of 157c per ordinary share, which is almost 43% higher than the 110c paid out in its previous financial half-year.
“This is a respectable performance,” said FirstRand CEO Alan Pullinger. “Economic profit has rebounded strongly, and pre-provision operating profit growth was robust. The group’s balance sheet strength is demonstrated in the healthy capital and liquidity levels, and conservative provisions have been maintained.” He said FNB, RMB, WesBank and Aldermore were all “well positioned to further capitalise on the economic recovery”.
The gradual improvement in the economic environment from the worst of the pandemic saw FirstRand’s total impairment charge fall 57% to just more than R4bn in the interim period as it lowered nonperforming loan provisions from its prior half-year. By contrast, the group’s total impairment charge was R9.41bn in the six-months to end-December 2020, a period that would’ve reflected much of the initial pandemic-related effects on the business.
Retail banking unit FNB was again the star performer, accounting for 60% of the group’s normalised earnings thanks to a 32% rise in normalised profit, which reached R9.56bn. While the bank experienced muted growth in advances, its deposit growth remained robust thanks to continued growth in its retail and commercial customer base.
RMB, the corporate and investment banking arm of FirstRand, saw normalised earnings rise 15% to R3.64bn mainly due to reduced impairments. The unit also reported a recovery in annuity income from its private equity investments as investee companies started benefiting from the economic recovery.
Vehicle and asset financing division WesBank grew normalised earnings by 17% to R782m despite tough market conditions driven by aggressive pricing from competitors. FirstRand indicated that the division was trying to combat that by focusing on lending to better-quality customers.
FirstRand’s UK operations, which comprise SME-focused retail bank Aldermore and vehicle financier MotoNovo, delivered what it called a “pleasing” performance, with pretax profits rising 46% to £99m. In rand terms, the two UK businesses, which contributed about 10% to FirstRand’s normalised earnings in the period, grew their normalised profit 44% to just more than R1.5bn.
FirstRand said the businesses achieved solid growth in deposits and new customers, with advances growth driven mainly by MotoNovo and business finance.
“FirstRand is well positioned to play strongly into the improving economic backdrop, with ample financial resources, compelling customer propositions, and strategies that are on track,” said Pullinger, adding that the group’s return on equity was expected to remain within the target range of 18%-22%.
Pullinger also said FirstRand’s growth in earnings for the full year to end-June 2022 would exceed the group’s long-term target of a real growth in earnings, as the last tailwinds of the post-pandemic recovery feed through to the bottom line.
While he flagged Russia's “indefensible” invasion of Ukraine as a potential risk to a recovery in the global economy, he said FirstRand was well positioned to navigate any potential macroeconomic challenges that may arise.
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