FirstRand – the owner of FNB, RMB and Wesbank – says its portfolio has produced a stronger underlying performance than anticipated in the second half of its financial year (January to June 2024).
In a trading update, the group said that this performance resulted in the underlying higher earnings growth emanating from operations compared to the first half of the 2023/2024 financial year.
“The macroeconomic environment in most of the jurisdictions where the group operates remained largely as anticipated, characterised by persistently high interest rates and inflation, resulting in ongoing affordability pressures, particularly for households,” said the group.
“However, the UK macroeconomic environment proved to be more benign than expected.”
“Against this backdrop, some of the key income statement lines trended better than estimated during the second six months of the financial year.”
Net interest income benefitted from improved investment rates following improved investment rates provided by market volatility and ongoing asset and liability management strategies executed.
Advances and deposits growth remained resilient, while growth in the group’s non-interest revenue was markedly stronger than in the first half of the financial year due to the benefits of its diversified capital-light income streams.
RMB produced stronger-than-expected growth in knowledge-based fee income and a private equity realisation of a similar value in the first half of the financial year.
In spite of fee reductions in the retail and commercial segments still occurring in the second half of the financial year, FNB saw higher levels of fee and commission income compared to the first half of the year following increased customer activity.
“Although impairments are higher than anticipated in certain retail portfolios, this has been offset by a better-than-expected credit performance from the UK operations,” said the group.
“This was mainly as a result of reducing cost-of-living pressures, which allowed for partial provision releases.:
“In addition, the resolution of the previously disclosed notice of sums in arrears remediation process allowed for a further provision release.”
The group’s operating expenses also saw mid-single-digit growth.
This is a more positive outcome than the group initially expected, mainly driven by FNB’s continued focus on cost management.
UK issues
That said, the group’s earnings growth is offset by the decision to raise an accounting provision for the disclosed UK motor commissions review process.
The UK’s Financial Conduct Authority (FCA) is looking into the historical use of discretionary commission
arrangements and sales by the mainstream lenders in the UK motor finance market (Investec has also been affected by this review).
Amidst the prevailing uncertainty, the group is raising an accounting provision based on its probability-weighted scenario principles, which it constructed from its own data analysis. This provision includes potential legal and redress costs.
As a result of the provision, the group updated the ranges for its earnings growth.
Earnings per share (EPS) are expected to grow by between 1% and, while headline EPS should increase by between 1% and 5%:
| Financial | FY 2022/23 | FY 2023/24 | % Change |
| Earnings per share (cents) | 648.1 | 654.6 to 699.9 | 1% to 8% |
| Headline EPS (cents) | 654.7 | 661.2 to 687.4 | 1% to 5% |
| Normalised EPS (cents) | 653.1 | 659.6 to 685.8 | 1% to 5% |
“FirstRand’s customer franchises are in good health and remain operationally resilient. Strategies are tracking as expected.”
“This stronger performance for the second half of the financial year is a pleasing outcome, given the challenging operating environment.”
“It has allowed the group to deliver higher earnings growth and returns to shareholders than expected and enabled it to absorb a conservatively struck accounting provision.”
The group’s financial results for the full year ended 30 June 2024 will be released on 12 September 2024.
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