South Africa’s oldest bank has a new R100 billion powerhouse

FNB Wealth and Investments (WIM) has accumulated more than R100 billion in assets under management, and its strong growth will allow it to penetrate deeper into the bank’s client base. 

South Africa’s oldest bank is busy reinventing itself as a fully integrated financial services provider by offering its clients a complete range of products from transactional banking to insurance and asset management. 

The main aim is to cross-sell insurance and investment products to FNB’s retail customers, creating an ecosystem whereby one institution can meet all a client’s needs. 

FirstRand’s interim results for the six months ended 31 December showed that this strategy is bearing fruit for FNB Wealth and Investments, penetrating further into the bank’s client base. 

Overall investment accounts grew 7% to 702,000, with the penetration of the FNB customer base at 10% and the private banking segment at 14%. 

FNB WIM CEO Bheki Mkhize explained to Daily Investor that these penetration rates are relatively low because the bank’s client base keeps growing. 

“It has grown strongly, but the bank base also continues to grow. It is just that the numbers are so large in terms of what you are measuring against that it may only be growing incrementally or by a few basis points,” Mkhize said. 

FNB grew its private clients by 9% year-on-year to 1.5 million individuals, with this segment ranging from people earning over R720,000 a year to some with over R100 million in investable assets. 

This highly lucrative segment of the bank offers the WIM division access to billions in assets to manage. It now has over R100 billion in assets under management, with over R250 billion under advice, execution, or administration. 

Its total asset base is over R377 billion, driven by the strong performance in local and international markets last year and increased penetration among wealthier FNB clients. 

Crucially, with the improved performance of local and global equity markets, client activity picked up, with share trading activity up 32% and the number of trading accounts up 9% to 402,000. 

This, along with increased assets under management, translated into strong non-interest revenue growth of 10% year-on-year for the WIM division. 

These earnings are extremely valuable for a bank as they are stable and predictable, with them being less sensitive to interest rate fluctuations and traditional banking activities. 

The table below shows FNB WIM’s impressive year-on-year growth. 

FNB Wealth and Investments growth plans

The WIM division must overcome some hurdles to sustain its growth in the coming years, as it is difficult to win over private banking clients, and there is a general lack of financial education in South Africa. 

Mkhize explained that many of FNB’s private banking clients have existing relationships with other asset managers, making it difficult to win them over. 

“Where you have a strong relationship with the client as a bank, it is relatively easy to access those clients and move them onto our products.”

“If they already have other relationships, sometimes it is harder. So you do get some time when they give you a portion of their money, but you do not have all of it,” Mkhize said. 

Another challenge is the lack of investable money out there, with lower-income clients not having the disposable income to invest. 

“As you get into the broader market and lower down the segmentation, the major hurdle is disposable income as clients are under pressure.” 

“Disposable income does become a challenge in terms of people telling us they need to trade between things they need to buy now versus putting money away for longer-term investments.” 

To overcome this, FNB WIM has invested heavily in improving the financial education of its client base, and the bank has upskilled its private bankers to offer clients better advice. 

Mkhize explained that some clients are scared of investing their money in equity markets out of fear of losing their money, preferring to put cash into savings accounts for guaranteed returns. 

A further challenge with this type of client is that they may invest money in an equity fund but do not stay invested for a long time because once the market turns, they sell out of the investment. 

“It is definitely playing out as expected and the way we intended.”