FNB is positioning itself for an expected credit cycle reboot as consumers and corporate incomes continue to recover, supported by pent-up private sector demand.
These trends will accelerate advances growth — the amount of money lent out as loans, mainly driven by retail and commercial portfolios.
FNB CEO Jacques Celliers said this week: “We are delighted by the pace at which our customers are really gaining momentum in the local economy. There is a lot of activity and pleasingly it points to … a little bit of a credit cycle. We need to position right for the credit cycle that is coming.”
Celliers was speaking after the release of results for the six months to December.
He said the credit cycle on its own “is not going to be enough for long-term growth, but structural reform can get us that medium-term growth”.
FNB is targeting low-risk customers and aims to take clients from rivals.
“Over the past few years, we’ve known that interest rates are going to come back at us now and we’ve tried to make sure that when we go to increasing interest rates cycle, and [a] growth appetite cycle, we do so with good risk customers.
“We are also deliberate about originating good risk customers from competitors. We are improving customer experience so ... we can be much nimbler to respond to those needs and get more clients.”
FirstRand, FNB’s parent company, said corporate advances growth is expected to improve, while the group expects a slowdown in deposit growth as consumers draw down on precautionary savings.
FirstRand CEO Alan Pullinger said there are signs that a reboot in South African credit growth is taking shape. “We expect the credit cycle to lift and are already seeing signs in selected pockets of secure credit, in particular asset finance,” he said.
Pullinger said despite the geopolitical uncertainty, South African corporations and employed consumers can increase their demand for credit and investment for spending on durables, notwithstanding a high level of uncertainty about interest rates.
“Crucially, the promising signs of [an uptick in] investment spending by SA corporates need to gain pace if we are going to build the long-term recovery for this country,” he said.
Moreover, “we are encouraged by signs that the enabling environment is starting to get better and this will hopefully make this investment spend possible”.
Crucially, the promising signs of [an uptick in] investment spending by SA corporates need to gain pace if we are going to build the long-term recovery for this country.
— FirstRand CEO Alan Pullinger
In the six months to December, FirstRand, which also owns Rand Merchant Bank, WesBank and UK-based Aldermore, reported a 43% increase in normalised earnings to R15.7bn.
FNB grew normalised earnings to R9.5bn from R7.2bn. Operational performance was bolstered by a macroeconomic recovery, deposit growth and an improved credit performance, coupled with continued digital innovation.
Celliers said the group has returned to pre-Covid levels sooner than anticipated.
FNB increased its customer numbers by 3% to a combined total of 10.69-million — 8.82-million customers in SA and 1.87-million in the rest of Africa.
The bank continues to expand its digital platform by adding more value-added services. Its digitally active customers increased to 6.21-million.
Meyrick Barker, investment analyst at Camissa Asset Management, said excluding the benefit of lower credit losses, FNB’s earnings were flat year on year.
“This is partly a function of having adopted a conservative credit origination policy over the past two years and thus generating limited loan growth,” he said.
Barker said that over the latter part of last year, FNB saw increasing opportunities to accelerate retail loan origination, and expects a continued recovery to persist.
It continues to attract new customers and is successfully growing its insurance and asset management offering. “This helps to offset some of the revenue pressures in traditional banking stemming from increased competition and regulation, as well as a South African economy that continues to be hindered by poor political decision-making,” he said.
Pullinger expects a much better performance for the remaining months of FirstRand’s financial year, which will return the group to pre-Covid levels. Its financial year ends in June.
Barker said FirstRand delivered strong earnings growth, mainly due to a big reduction in bad debts year on year. Accounting standards require banks to adopt a forward-looking view and to try to pre-emptively determine credit losses that will ultimately arise in their loan books, he said.
“During the … economic stresses of the recent lockdowns, FirstRand was concerned that its client base would suffer significant hardships, and the bank recognised potential credit losses that may arise. These anticipated negative scenarios haven’t fully materialised and the gradual recovery in the economic outlook and customers’ incomes has resulted in significantly lower credit losses in the current period.”
Commenting on Russia’s invasion of Ukraine, Celliers said it is early days but some immediate effects include having to comply with all sanctions and impacts on payments as those rules and sanctions become real. “We will try to help customers as much as we can,” he said.
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