Africa’s Biggest Bank to Resume Dividends From Surplus Cash
FirstRand Ltd. is keen to resume dividend payments once South African regulators give the go ahead to draw down surplus cash at the continent’s largest bank by market value.
The Johannesburg-based lender withheld its final payout in line with regulatory guidance to preserve capital amid ongoing uncertainty caused by the coronavirus pandemic. South Africa’s watchdog is following peers in the northern hemisphere, which have urged banks to pause investor payouts at least until January.
“It is a very important shareholder-value proposition to receive dividends,” Chief Executive Officer Alan Pullinger said by phone. “I am hopeful that we will be able to have a different story when we get to the interims.”
Other South African lenders, including Standard Bank Group Ltd. and Nedbank Ltd., have also adhered to the directive by not declaring first-half dividends. FirstRand, which runs on a different results cycle to its rivals, said adjusted earnings in the 12 months through June slumped 38%. Excluding provisions, operating profit for the year fell 2%.
FirstRand had surplus capital of 5.1 billion rand ($304 million) above its Common Equity Tier 1 target at the end of June, according to a presentation on its website. That demonstrates the affordability of dividends and also gives the company enough room to support any regulatory changes, an expansion of its existing businesses and accounting changes, it said. The excess was 8 billion rand at the end of December.
FirstRand operates businesses in several sub-Saharan Africa markets, the U.K. and India. Its business in South Africa made up most of its total loans, while the U.K. and rest of Africa units contributed 24% and 9% respectively.
The bank may add businesses on the continent and seek ways to grow operations in the U.K. FirstRand plans to exit Tanzania because the business there couldn’t be appropriately sized given the structure of the East Africa’s country’s market, it said.
At home, where the economy has entered its longest recession in 28 years and a 30% jobless rate threatens the financial stability of the banking industry’s customer base, FirstRand continues to pursue a strategy of digitization and cross-selling of products across the group, the CEO said.
As the Covid-19 crisis persists, the company will need to accelerate cost-saving measures, which may include managing its headcount, Pullinger said.
“Right now, I am going to say to you there are no concrete plans, but is this topic on the table? It has to be on the table,” he said. “If we don’t see some rapid improvement I think we have to start looking at lots of cost items. Not just at headcount.”
FirstRand’s shares rose 1.2% as of 1:21 p.m. in Johannesburg, compared with a 2.5% rally in the six-member FTSE/JSE Africa Bank Index.
©2020 Bloomberg L.P.