FirstRand, the financial services group that owns FNB, WesBank and Rand Merchant Bank (RMB), raised its interim dividend thanks to strong half-year profit growth driven by new business wins across its lending units and higher deposits.
Normalised earnings attributable to ordinary shareholders rose 15% to R18.05bn in the six months to end-December 2022, up from R15.74bn the previous year, FirstRand said on Thursday. That enabled the group to declare an ordinary dividend of 189c for the period, 20% higher than the 157c payout for the previous matching period.
FirstRand announced the highest annual dividend in its history in September 2022 when it declared an ordinary dividend of 342c and a special dividend of 125c for the year to end-June 2022.
However, FirstRand CEO Alan Pullinger told Business Day he does not see FirstRand’s full-year results for 2023 resulting in a higher dividend than in the prior financial year.
“It’s pretty generous — it’s basically 59% of profit that we’re paying out,” Pullinger said of Thursday’s interim dividend declaration. “I don’t think we’d do another special [dividend].”
“These results ... demonstrate the size and quality of FirstRand’s transactional and deposit franchises, continued momentum in lending, and a better credit outcome than expected,” said Pullinger. “Particularly pleasing is the ROE [return on equity] of 21.8%, now firmly positioned at the top end of the group’s stated range of 18%-22%.”
FNB, the group’s retail banking unit, contributed 61% of FirstRand’s earnings as its active customer base increased by 5% to 11.22-million.
The banking unit also saw strong growth in overall customer transactions while digital log-ins exceeded 878-million and the FNB app had 603-million log-ins, 103-million of which occurred in October 2022 alone. FNB’s normalised profit before tax rose 16% to R15.9bn while its ROE improved to 42.9%.
FNB’s short-term insurance policies rose to 275,000, up 13% from the previous six-month period, while total pre-emptive life insurance claims since the introduction of FNB Life have now reached R612m. The lender’s wealth and investments business, which has assets under management (AUM) of R71.5bn, saw a modest 3% uptick in accounts to 604,000.
The group’s next largest contributor to earnings was corporate and investment banking division RMB, now headed by Emrie Brown since former CEO James Formby left at the end of September 2022. RMB ramped up its transition and infrastructure financing in the period while continuing to grow its broader Africa business, resulting in a 28.3% increase in normalised earnings to R4.68bn.
RMB’s increased infrastructure funding was mainly to facilitate investment in private-sector-led power generation as regulatory changes enabled a greater interest in such projects. Brown said RMB has a pipeline of more than 5,000MW of private renewable energy projects which she believes will go a long way towards alleviating SA’s chronic power shortage.
“ESG [environmental, social, and governance] client solutions remain a key growth area in SA, and RMB is committed to facilitating sustainable finance transactions of R100bn by next year, and R200bn by 2026,” said Brown. “We believe the opportunity also applies to our broader Africa jurisdictions, where the team has already started to engage with clients.”
In the six months to end-December 2022, RMB’s sustainability finance and ESG advisory teams facilitated transactions to the value of R17.3bn, adding to the R26.41bn facilitated over the previous financial year. RMB’s banking and private equity businesses both saw strong growth in the period, though its markets business delivered a mixed performance due to challenging trading conditions.
Vehicle financing unit WesBank saw a modest 6% increase in normalised earnings to R929m as trading conditions remained tough due to rising interest rates.
FirstRand’s operations in the UK, Aldermore and MotoNovo, delivered a 7% rise in normalised earnings to R1.61bn while the group’s portfolio of businesses in the rest of Africa grew normalised profit before tax by 12%.
Despite the strong performance, Pullinger warned of “significant risks in the wider system”, specifically mentioning SA’s recent greylisting by the Financial Action Task Force (FATF), which he said, though manageable, could result in reduced capital flows to the country. He also warned of rising geopolitical tension stemming from Russia’s invasion of Ukraine and the resultant diplomatic fallout.
“While the macroeconomic environments where we operate remain challenging, FirstRand will continue to deliver growth and superior returns to our shareholders, with the group’s ROE expected to remain comfortably within the target range of 18%-22%,” said Pullinger.
theunisseng@businesslive.co.za
Updated: March 02 2023
This article has been updated with addtional information
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