FirstRand curbs credit as defaults bite
FirstRand is curbing credit in response to an increase in defaults, a commodity-price slump and slowing consumer demand in its biggest markets.
|||Johannesburg - FirstRand, Africa’s biggest bank, is curbing credit in response to an increase in defaults, a commodity-price slump and slowing consumer demand in its biggest markets, which include South Africa, Nigeria and Zambia.
FirstRand’s share price closed 7.43 percent lower at R45.60 on the day after the group reported slight growth in net profit in the six months to December. FirstRand has a market capitalisation of R255.79bn.
Read: FirstRand profit steady amid slow growth
Johan Burger, the group’s chief executive, said yesterday: “The retail cycle has turned and the rest of Africa has also seen some uptick in non-performing loans. This year, we have taken a decision to make further cuts on credit granting, so asset growth will drop.”
He said the lending related to the fact that as economic growth slowed, consumers affordability levels came under pressure, and corporates did not invest in capacity.
“The consequence of that is the banks cut back origination,” Burger said. Origination is when a borrower submits a variety of financial information, for example credit card information and bank balances to the lender, who uses it to determine the type of loan the borrower is eligible for and what interest rate they will pay.
FirstRand posted 1.3 percent growth in profit to R11.28 billion, up from R11.13bn in the previous comparable period. Net income rose 1.7 percent to R10.48bn. The dividend rose 108 cents a share from 93c, while non-performing loans rose 8 percent.
Earnings per share, excluding one-off items, rose 3 percent to R1.85. Last week Standard Bank announced earnings growth of 27 percent, Absa of more than 10 percent and Nedbank of 9 percent.
Burger said during the period under review that the economy was further negatively impacted by significant internal and external pressures, affecting the bank.
South Africa recorded only 0.6 growth in the economy last quarter and the International Monetary Fund (IMF) projected early in 2016 that the country would grow its economy by 0.7 percent.
South Africa’s downgrading by Moody’s and Standard & Poor’s from stable to negative in December seems to be weighing down not only the government but the business sector too.
Sam Moss, FirstRand’s spokeswoman, said the ratings agencies affected how the banks conducted their business.
“A downgrade, should it happen, impacts banks primarily in that funding becomes more expensive, particularly foreign funding,” she said.
“There are also secondary impacts on the broader economy through higher inflation, weaker currency and higher interest rates.”
First National Bank (FNB) grew pre-tax profits 10 percent to R9.04bn, driven by a resilient operational performance, despite increasing economic and regulatory headwinds and achieved a return on equity of 40.5 percent, which remains well above hurdle rates.
Burger said absolute growth in fee income was curtailed by the continued strategy to migrate customers to electronic channels. Electronic volumes increased 13 percent, while manual volumes were flat, in line with strategy.
Rand Merchant Bank (RMB) grew its pre-tax profits by 13 percent to R4.7bn, while vehicle finance division Wesbank also recorded a 13 percent increase in pre-tax profits to R2.62bn.
Its other business, Ashburton Investments acquired Atlantic Asset Management in January 2016 for R51m. The acquisition includes R5 billion in assets under management.
BUSINESS REPORT