FirstRand rolling with the UK punches

Africa’s most valuable bank posted strong results for its latest financial year despite raising significant provisions to cover a pending regulatory case in the United Kingdom. 

FNB-owner FirstRand revealed it had raised R3 billion in provisions to cover potential penalties from an investigation by the UK’s Financial Conduct Authority into car loans from its MotoNovo unit. 

Earlier estimates placed the potential cost of the probe at R7.6 billion for FirstRand, representing around 13% of the company’s profits. 

FirstRand remains confident that it did not operate outside of legislation in the UK and said it raised the provision as a result of regulatory uncertainty.

Despite this, the company produce solid results for the financial year to the end of June 2024, with profit for the year growing 5% to R40.98 billion. 

FirstRand’s net income grew strongly, by 7% to R128.8 billion. However, the growth in its costs outstripped this by 4%, negatively impacting profit margins. 

Earnings per share growth was healthy at 5%, growing to 681.4 cents per share.

The company’s return on equity remains healthy at 20.1% and is at the midpoint of its target range despite the R3 billion provision. 

It also flagged a rise in its credit loss ratio as clients came under financial pressure and were unable to pay back some of their loans. 

FirstRand said its tight lending approach in South Africa and other African markets ensured its credit loss ratio did not breach its target range. 

The company also offset the negative impact of non-performing loans in its retail segment through strong growth in its corporate and commercial businesses. 

Its African businesses also grew strongly, although some of this was offset by foreign exchange volatility in key markets. 

FirstRand has also grown its wealth and investment management business strongly to try reduce its sensitivity to interest rates. 

This is also part of the company’s efforts to become the dominant full-service financial institution in South Africa and cross-sell its investment products to banking clients. 

CEO Mary Vilakazi praised the company’s performance and said it is reflective of the hard work undertaken over decades to create a diverse portfolio. 

“Despite a tough macro environment, a standout feature of these results is the operational outperformance delivered by FirstRand’s portfolio in the second half of the year,” she said. 

“This allowed the group to absorb an accounting provision raised for the UK motor commission review.” 

It also enabled the company to grow its final dividend significantly by 8% to 415 cents per share. 

Vilakazi also said FirstRand exceeded its performance expectations at the beginning of the year, with the company growing from a high base.