FirstRand grows earnings 10% boosted by geographic diversification

FirstRand has grown earnings and dividends by 10% at the halfway stage of the financial year, with its segment and geographic diversification contributing to the strong operational performance.

Normalised and headline earnings for the six months ended December increased 10% to R20.92bn and R20.96bn respectively, translating into headline earnings per share (HEPS) of 374.4c from 341.4c a year ago. 

An interim dividend of 219c per share was declared, up 10% year on year.

The group said relative to its expectations for the period, its portfolio had performed better than initially anticipated.

That was mainly due to the stronger overall credit performance driven by retail credit in SA trending ahead of expectations and a much stronger credit outcome in the UK operations, the group said.

As a result, FirstRand’s credit loss ratio at 84 basis points was ahead of its initial through-the-cycle expectations. Costs growing lower than inflation was also a more positive outcome than previously guided and had resulted in positive jaws.

Return on equity of 20.8% remained well within the group’s stated range of 18%-22%. Economic profits increased 12% to R6.2bn while net asset value grew 9%.

“These are very pleasing shareholder outcomes given the challenging operating environment, and testament to the quality of the group’s customer-facing franchises FNB, RMB, WesBank and Aldermore,” said CEO Mary Vilakazi.

“These outcomes also demonstrate the advantages of the group’s through-the-cycle approach to new business origination, resulting in a better-than-expected credit performance, and ongoing discipline in the allocation of financial resources, which continues to support the superior return profile,” she said.

The corporate and commercial franchises continued to mitigate some of the strain still emanating from the retail portfolios, given the ongoing interest rate cycle and inflation pressures facing SA households, FirstRand said.

The broader Africa portfolio and UK operations both delivered solid performances, with FNB’s broader Africa franchise increasing profit before tax (PBT) 9% and RMB’s broader Africa PBT growing 3%.

The UK operations produced 13% growth in PBT (in Sterling). The Centre, comprising group treasury and support functions, produced normalised earnings of R1.7bn.

Overall group net interest income (NII) before impairment of advances increased 4% to R44.66bn, driven by core lending advances growth (7%), continued deposit gathering (8%) and increased capital endowment balances (14%).

Period-on-period advances growth in the retail portfolios remained relatively muted given customer affordability pressures and low demand.

There was continued growth in commercial and corporate advances. Advances increased 4% in FNB retail, 6% in WesBank retail vehicle asset finance and 6% in FNB broader Africa.

The solid advances growth from FNB commercial (12%) and RMB core lending (9%) remained an outcome of focused origination in sectors showing above-cycle growth and which were expected to perform well, even in an inflationary and high interest rate environment, FirstRand said.

The group expected the global economic environment to remain uncertain with supply-chain fragmentation and trade tariffs meaning that for the foreseeable future global inflation was unlikely to reduce materially from current levels.

Offsetting those global headwinds was a more constructive outlook for the SA economic performance, driven by an improvement in energy supply, signs of a better functioning rail and port infrastructure and an increased focus on improved municipal service delivery which should lower the cost of doing business, lift confidence and increase private sector investment.

The macro-outlook for the countries in the group’s broader Africa portfolio was also constructive, FirstRand said. The near-term expectations for the UK economy were mixed.

“Against this backdrop the group expects its operating franchises to continue to deliver good growth and strong operational performances. Overall balance sheet growth will remain healthy, driven by similar advances and deposits growth in the second half compared to the first six months,” the company said.

NII growth was expected to be slightly weaker in the second half as the endowment effect from the current rate cutting cycle continued to fully materialise, FirstRand said.

Growth in fee and commission, insurance and fair value income would be broadly similar to the first half. However, investment income could benefit from a material private equity realisation in the second half, resulting in overall higher NIR growth.

The group’s overall credit performance should trend better than the first half, resulting in a CLR at the lower end of the group’s stated TTC range. This will be driven by a continued improvement in retail, with corporate and commercial showing a similar picture to the first half.

The UK operations CLR was expected to normalise closer to the bottom of its TTC range as the one-off provision benefits in previous periods unwind. 

“The healthy balance sheet growth, combined with a better NIR growth trajectory, improving credit outcomes and good cost management means the group now expects to deliver full-year earnings growth above its long-term stated target range of nominal GDP + 0% to 3%, as second-half absolute earnings will be marginally higher than the first half,” it said.

MackenzieJ@arena.africa