FNB profit climbs despite spike in bad debts

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FirstRand reported a 5% increase in its headline profit to R27.9 billion in the year to end-June.

Almost two-thirds of its profit came from FNB, with the rest from RMB (25%), Westbank (7%) and its various other businesses, including the Aldermore Bank in the UK.

FNB saw strong growth in non-interest revenue thanks to increased transactional volumes, and “high-quality” net interest income from growing deposits, with its normalised profit up 11% to R17.6 billion.

This is despite a 55% increase in non-performing loans (where borrowers have fallen far behind on repayments). On personal loans alone, this cost FNB more than R500 million, which is 63% higher than the cost in the previous year. The higher write-offs were large expected, given the 36% growth in its personal loan book.

FNB card impairments increased by R330 million, with “non-performing” credit almost doubling as the bank extended cards to new customers, some of whom haven’t had credit cards before.

“As part of its focus on acquiring new customers and cross-selling credit cards into its base, FNB saw strong book growth from new-to-bank and new-to-product origination strategies. FNB implemented significant risk cutbacks, however, these cuts were delayed in certain cohorts.”

The widespread drought also resulted in loan repayment problems among its commercial farmers.

WesBank saw its earnings decline by 2% due in part to weak vehicle sales, and RMB’s normalised profit fell by 4%, despite strong growth in its other African markets.

“The country needs urgent economic reform, which should, at a minimum, include energy supply, price stability and policy certainty in key areas such as fiscal consolidation, SOE reform, land reform and mining rights. Without action on these critical issues, the risk of further sovereign rating downgrades remains elevated,” FirstRand warned in its earnings report.

However, it remains optimistic that FNB’s growth momentum will continue, with “cross-sell and up-sell strategies” delivering higher insurance revenues and good deposit and advances growth.

FirstRand’s share price was up 2.4% following the results, and traded at R64.44 by late morning on Thursday.

Credit: Fin24

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