Record Profit Helps Propel FirstRand’s Post-Pandemic Rebound
FirstRand Ltd., Africa’s biggest bank by market value, expects to achieve “peak earnings” ahead of its original target after reaching its highest-ever results for a half-year period through June.
“The group previously indicated that it expected to reach peak earnings during the 2023 financial year,” the Johannesburg-based lender said in a statement on Thursday. “However, the speed, extent and breadth of the rebound has exceeded expectations.”
While much of its performance can be attributed to a low-base effect on the back of last year’s pandemic earnings slump, the lender grew pre-provision operating profit by 5% in the 12 months ending in June. Looking ahead, a positive credit cycle is emerging, Chief Executive Officer Alan Pullinger said by phone.
“We see early signs of a drawdown in deposits, so customers are starting to use those deposits,” he said. “At the same some of the advances books are now starting to turn up.”
Profit after tax grew 48% to 28.1 billion rand ($1.9 billion) as South Africa’s economy shows signs of recovery. FirstRand will distribute a dividend for the period representing a 56% payout, which is at the lower end of the bank’s target range as it anticipates better growth.
If that doesn’t come about, surplus capital will be spent appropriately in order to maintain returns, Pullinger said in a presentation.
FirstRand and other local banks are reporting better profits as their reserves set aside to cover souring loans fall, after bad debts resulting from the pandemic were less severe than expected. Rivals including Absa Group Ltd. are seeking opportunities to drive growth but have warned that further surges in coronavirus infections and disruptions in power supply remain constraints for businesses in South Africa.
FirstRand continues to seek ways to expand its presence in East Africa, Pullinger said. The company on Wednesday also announced that it was halting its funding for new coal-fired power stations with immediate effect as banks pursue greener technologies.
While FirstRand’s growth was underpinned by the underlying performances from units including FNB and RMB, its vehicle financing arm WesBank experienced a drop in pre-provision operating profit due to lower advances and revenue, and higher costs. The company must also continue managing a 166 billion rand relief book made up of loans rescheduled for customer finances hit by the virus.
FirstRand shares had fallen 2.4% by 2pm in Johannesburg as the six-member FTSE/JSE All Share Banks Index slumped 1.9%.
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