FNB-owner FirstRand reports modest growth

FirstRand reported a 6% increase in normalised earnings, driven by strong net interest income and customer growth, but its economic profit declined due to a higher cost of equity.

FirstRand – which owns FNB, RMB, WesBank and Ashburton Investments – released its results for the six months through December 2023 today.

The results revealed a 6% increase in the company’s normalised earnings, which was driven by good topline growth, particularly net interest income (NII).

The company’s NII – which grew by 14% to R42.8 billion – benefited from continued momentum in new business origination, ongoing excellent growth from the deposit franchise and the endowment benefit from the current rate cycle.

Profit for the period grew by 7% to R20.55 billion, and total net asset value increased by 14% to R190 billion.

Non-interest revenue grew by 4%, reflecting the base created by a significant private equity realisation in 2022.

It was also impacted by fee reductions in the retail and commercial segments in 2023 and a loss in the same year from the partial unwind of the UK operations’ interest rate risk hedge.

FirstRand said the underlying performances from the group’s retail, commercial and corporate transactional franchises – measured by customer growth and volumes – remained strong.

The overall credit performance continues to trend better than FirstRand’s initial expectations, which the company said is a direct outcome of the origination approach.

This has resulted in a credit charge for the period under review well below the midpoint of the company’s through-the-cycle range.

FirstRand delivered a normalised ROE of 20.6%, which is well-placed in its target range of 18% to 22%. 

The 100 basis point movement in the ROE compared to December 2022 (21.6%) was predominantly due to the 9 basis points reduction in return on assets (ROA). 

This resulted from cyclically high retail credit impairments, the partial unwind of the UK interest rate risk hedge due to the recent volatility in UK interest rates, and the high base from a private equity realisation in the prior period. 

Including the benefit from foreign currency movements in the capital deployed in the UK, ongoing capital generation also had a marginal impact.

FirstRand reported a credit loss ratio – which measures bad loans versus total loans – of 83 basis points, up from 74 basis points last year.

The company produced R5.5 billion of economic profit or net income after the cost of capital, which is its key performance measure. This is down significantly from R6.1 billion in December 2022. 

This reduction was a result of a 40 basis points increase in the cost of equity and the reduction in ROE.

Given the high return profile, FirstRand remained capital generative, with a Common Equity Tier 1 ratio of 13.3%, slightly lower than 13.2% in 2022.

Taking into account this strong capital level, FirstRand’s board felt comfortable keeping the dividend cover unchanged at 1.7 times. 

This translates into an interim dividend of 200 cents per share, an increase of 6%.