South Africa’s most valuable bank faces UK headache

FirstRand, South Africa’s biggest bank by market value, may revise the number of provisions it sets aside to cover potential compensation and other costs it is facing, which are tied to missold car loans in the UK.

Britain’s Financial Conduct Authority said Sunday it will consult on a redress scheme for the missold loans, which could potentially cost lenders over £9 billion ($12 billion).

This comes after the UK Supreme Court overturned most of a lower court ruling and found that dealers can act in their own interests and generally don’t need informed consent to charge commission.

The judges upheld one of the Court of Appeal’s rulings in a case involving FirstRand. The judges said that the case stood out because of several factors, including the significant commission FirstRand paid to the dealer, amounting to 55% of the total charge for credit.

FirstRand estimates that over an 18-year period, agreements with a large commission represented 4% of total agreements and only 7% of the total commissions paid.

“Assuming that all such customers fall under the FCA’s unfairness criteria for the redress scheme, the group may be required to update its accounting provision for the year-end”, June 30, 2025, the lender said.

Should this materialise, normalised earnings growth for the year would trend closer to the bottom end of the guidance range of a percentage in the low double digit to mid teens, it said. FirstRand had initially set aside a provision of £127.4 million.

Avior Capital Markets estimates that FirstRand may need to increase its provision by £40 million, or almost R1 billion, for the potential FCA redress costs.

FirstRand’s shares traded 2.8% higher at R77.691 per share at 15:00 in Johannesburg, its highest intra-day level since Jan. 22.