Major South African bank opening the taps

A unit of FirstRand, Africa’s biggest bank by market value, is stepping up lending, wagering that healthier balance sheets and improved borrower affordability will fuel loan growth in South Africa despite fierce competition.

“We are expecting better growth rates of advances in the next 12 months because impairments stabilized,” said First National Bank Chief Executive Officer Harry Kellan in an interview.

“While the strain in consumers still continues, the affordability for some individuals has improved, which means that our lending capacity has increased.” 

FNB, which generates more than half of its parent’s normalized earnings, pulled back on loan growth after the 2020 coronavirus pandemic, focusing on low- to medium-risk customers as households came under pressure. 

The strategy kept the lender’s credit loss ratio — bad loans as a share of total lending — below the top of its 80-to-110 basis-point target, while rivals including, Absa, and Nedbank breached their ceilings in 2023.

Absa only pulled its ratio back within target by June this year.

Slowing inflation, a 125 basis point cut in interest rates since last September, and salary increases have helped ease some pressure on FNB customers, allowing for the pivot, said Kellan. 

To be sure, South Africa’s economy remains in a rut, prompting several lenders to look for ways to diversify their income streams even as new entrants such as OM Bank elbow in for a bigger market share.

“South Africa’s GDP growth is not great, which means the growth of customers — whether it’s small businesses, SMEs, or whether it’s retail customers — isn’t great, and you definitely have more competition in the space, so the fight for customer acquisition is significant,” Kellan said. 

FNB is also intensifying its focus on small- and medium-sized enterprises to grow its earnings. 

“We are the largest SME bank in the country,” Kellan said, citing the 6% gain in commercial clients in the year to June. “And we still see growth in that.”  

The bank is rolling out a plan that will allow some of its licensed businesses to act as agents to enable customers to withdraw and deposit money. 

“That supports the SME, it supports the retail customer, the SMEs make money, and we save money,” Kellan said. 

FNB also plans to grow its footprint in Ghana and Zambia, where improving macroeconomic conditions are creating opportunities for further expansion.

According to Kellan, the Ghanaian business still requires capital to recover from the impact of the 2022 sovereign debt restructuring, while ongoing reforms in Zambia and a growing push for renewable energy projects has boosted its lending appetite in the market. 

“We are happy to do greenfield investments,” Kellan said. “If there’s an opportunity to bolt onto a business and make it more scalable and enhance it,” then we will consider it, he said.