Investec prepares for R702 million hit

Investec set aside £30 million (R702 million) to pay for possible compensation and other costs linked to UK regulators’ ongoing probe of its auto lending business.

The provision, tied to the Financial Conduct Authority review into historical motor finance commission arrangements and sales, boosted the South African lender’s overall costs in the year ending in March, according to a statement. 

The regulator has been reviewing the commissions arrangements for car loans, in a practice known as discretionary commission arrangements.

The plan allowed car dealerships to earn thousands of extra pounds for themselves, and the bank, by pushing up the interest rate they offered buyers.

The system, which the regulator banned in 2021, ultimately incentivized dealers to pick a higher rate for customers. 

Investec is not the only South African lender caught up in the probe. FirstRand, the country’s biggest bank by market value, would likely face costs of £319 million to redress the issue at its MotoNovo unit, according to analysts at Anchor StockBrokers.

That would represent about 13% of the company’s forecasted profits for its fiscal 2024 year, the analysts said in January. 

Lloyds Banking Group Plc, the UK’s biggest provider of car finance, has also set aside £450 million to pay for possible compensation and other costs linked to the car finance probe.

Close Brothers also said it expects to incur about £10 million in costs associated with the historical discretionary commission arrangements this fiscal year.

Despite the provision, the bank’s earnings jumped as high interest rates boosted net interest income. The lender declared a record dividend of 19 pence per share, bringing the total dividend for the year to 34.5 pence per share. 

“This performance demonstrates the continued success in our client acquisition strategies,” CEO Fani Titi said in an emailed note.