The FirstRand holding group’s shareholders are laughing all the way to the bank after the group declared its highest annual dividend yet of 342 cents per share (a 30% increase), as well as a special dividend of 125c per share. In total, the distribution to shareholders is R26.2-billion.

The group’s normalised earnings, based on operational and capital investment activities, were up 23% to R32.7-billion for the year ended 30 June 2022 — an increase from R26.6-billion in 2021.  The “spring in the step” of normalised earnings came from the stepdown in the annual cost of credit, explained FirstRand CEO Alan Pullinger.

Credit impairment charges were down 48%, from R13.66-billion to R7.08-billion.

FirstRand’s portfolio of integrated financial services businesses, comprising FNB, Rand Merchant Bank (RMB), WesBank, and Aldermore and MotoNovo in the UK, offers transactional, lending, investment and insurance products and services.

RMB, the corporate and investment banking division of FirstRand, has delivered a solid performance in the year under review, with pre-tax profit up 17% and a 22.1% improvement in return on investment. This was driven, in particular, by the lower cost of credit.

RMB’s core lending is up 18%, a group highlight, which Pullinger said was a “good omen for the year ahead”.

In a statement, RMB CEO James Formby said: “We advanced R126-billion in new loans and refinancings across South Africa and broader Africa.” 

The bank’s transactional banking business had seen 9% growth in average deposits and “pleasing growth” in primary-banked clients in a highly competitive environment. Investment costs increased 21% due to the modernisation of its core platforms to enhance its digital offering to its clients, and grow its broader Africa franchise. 

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Its broader Africa portfolio, which it sees as key to its growth, saw an increase of 5% in pre-provision operating profit due to primary-banked client acquisition, solid advances in growth and improving margins on the back of interest rate increases. Earnings were up 11%.

Overall pre-tax profits of R2.55-billion (22% of RMB’s overall normalised profit before tax, or PBT) declined 17% year-on-year, due to investment in the RMB platform and a provision raise in the year under review. African customers, the group said, are eagerly adopting digital platforms, reporting a 39.9% rise.

In Nigeria, the market remained subdued, reflecting investors’ ongoing risk aversion; Botswana benefited from strong advances in growth and increased-term lending margins as well as an improvement in the markets business; while Zambia’s performance was driven by book growth and improved margins as the economy recovers.

The group’s UK operations — Aldermore  (a multiproduct specialist lender) and vehicle financier MotoNovo — reported a 9% increase in normalised earnings to £149-million (R3.01-billion), which was driven by growth in loans and savings. Retail lending in the UK market had focused on good quality, lower-risk customers while mortgage loans saw a significant uptick. Pullinger said the UK business was well placed to increase collections capacity, if required. 

Inflation was a concern, he said, as the macroeconomic environment was characterised by sharply falling consumer confidence and surging inflation. Energy and food prices are driving inflation higher while declining real incomes and lower confidence are pushing economic activity lower. With the Bank of England raising interest rates to control inflation and slow economic recovery, house price growth is expected to begin to slow.

FNB also up strongly

FNB similarly saw earnings up strongly to 22% and deposits up 13%. In a statement, the bank attributed its success to its 10.96 million customers who “place their trust in our ability to help them with their financial, business and lifestyle needs”.

The bank said its performance was driven by more customers, increased transactional volumes, strong deposit growth, lower impairments, and increased disbursements to its retail and commercial customers. During the year under review, FNB saw a 5% increase in active customers; a 23% increase in profit before tax; a 13% increase in deposits; a 7% increase in advances; and a 14% increase in transaction volumes. More customers were digitally active, with 1.6 billion logins.

Pullinger said their insurance businesses had experienced lower mortality and retrenchment claims in the past year, with a reduced number of Covid-related deaths and improved economic conditions, resulting in lower claims reserves. The life business paid R2.6-billion in claims over the past year. 

FNB Life, he said, continued its impressive run with a strong annual premium equivalent growth of 14% in force, on the back of solid new business volumes. The short-term insurance business is gaining traction too, with impressive new business sales.

Vehicle financing division WesBank’s normalised earnings were up 23%, and new business production increased by 11%, due to a recovery in the new vehicle market (albeit off a low base), as impairments were down significantly. WesBank’s credit impairment charge was down by R802-million to R1.402-billion.

FirstRand added that the year was marked by slowing global economic growth, market volatility and a significant increase in geopolitical risk, with Russia’s invasion of Ukraine exacerbating the high cost of living in developed and emerging economies. Citing interest rate hikes to stem inflation, FirstRand said consumers must be shielded from the effects of this slowing growth and higher inflation. 

But there are reasons for optimism because, despite the slowdown in overall activity, household data indicate that income levels among the employed have improved following the deep contractions experienced in 2020, and retail confidence is returning. 

“This, combined with a reduction in precautionary savings rates, underpinned household credit growth and [provided] some support to house prices.”

With confidence improving in SA, the corporate sector’s demand for credit has increased and there were signs of positive structural reform developments, including the liberalisation of energy production, confirmed private sector involvement in Transnet and the ports, and the successful completion of the 5G spectrum auction in March 2022. DM/BM