FirstRand, South Africa’s most valuable banking group, has raised provisions for UK motor finance claims to R17.7bn — more than 40% of its 2025 earnings — as it assesses the future of its UK business, including a possible exit.
The group on Tuesday said it had raised the provisions by a hefty £510m (about R11.9bn) following the latest developments in the UK on the matter, confirming earlier reporting by Business Day that the lender was set for more pain in the UK.
The UK’s Financial Conduct Authority (FCA) last week said it had tightened conditions for borrowers to receive compensation, meaning 12.1-million loans are eligible, down from 14.2-million initially.
The watchdog said lenders, including FirstRand and Investec, would have to pay £7.5bn (about R170bn) in compensation to consumers over a scheme that involved commissions paid by lenders to car dealers who arranged finance for consumers to assist them in vehicle purchases.
Commissions paid varied but were as high as 55% of the total charge for credit in one case.
FirstRand operates in the UK through MotoNovo, which is housed under Aldermore Bank. FirstRand had initially set aside about R6bn in provisions, having already spent about R300m in legal fees.
The £510m surge in provisions to £750m is a blow to the group’s UK car finance business, given it has generated just £275m in profit over the past decade.
The provision is also not far from the £1.1bn FirstRand paid for Aldermore in 2017.
The new provision is the realisation of FirstRand’s worst-case scenario, having previously warned that should the redress scheme result in the level of provisioning, it “would be forced to consider whether it can continue to participate in motor finance lending in the UK market on a sustainable basis”.
The group said on Tuesday its worst fears have now been realised.
“Given the provision amount facing MotoNovo in meeting the requirements of the redress scheme, the business will require further recapitalisation from the group’s existing available resources in its UK operations,” it said in a regulatory filing.
“This may mean financial resources available for allocation to motor finance in the UK will be severely constrained, resulting in capital not being available to fund growth in the MotoNovo business. This will have a negative impact on FirstRand’s excess capital position.”
Business Day reported in February that Moody’s said it expected FirstRand and other lenders to raise the provisions, putting FirstRand’s potential provisions in the range of £500-£600m.
In 2024, MotoNovo resumed new business origination after a temporary halt while it updated its processes in response to an investigation by authorities on commissions paid to dealers.
FirstRand indicated that the new provision will cause it to exit the business.
“While the group believes that Aldermore Bank is a resilient and sustainable business serving an important need in the UK market, with a management team that is executing on a sensible strategy to diversify asset classes and funding, extract greater operational leverage and improve the current ROE, the UK as a consumer finance jurisdiction will not deliver the returns the group requires,” FirstRand said.
“Therefore, the business case for FirstRand to own and operate a UK consumer finance entity, particularly given its disciplined financial resource allocation principles, coupled with the legal and regulatory look-back risk, is not within the group’s risk appetite.
“Cognisant of protecting shareholder value and ensuring Aldermore’s future success, the group will work with the Aldermore board and respective regulators to facilitate an orderly ownership transition.”
Aldermore was founded in 2009 by a former Barclays executive with backing from private equity firm AnaCap.
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