FirstRand Profits Dip As Customers Demand Debt Relief

FirstRand recorded a significant drop in profits for the fiscal year ended June 2020, reflecting an extremely difficult business environment caused by the Covid-19 pandemic and the lockdown that followed.

Overall profit fell 38% to R17.3 billion, from R27.9 billion previously. Basic earnings per share reflected the same decline to 308.9 cents, from 497.2 cents previously.

Net interest income edged up 4% to R 62.9 billion. Return on equity (ROE) declined to 12.9%, mainly due to the much higher than expected credit impairment charge – up 132% – due to forward-looking economic assumptions, he said. he declares.

“In addition, after the lockdown began in March 2020, underlying customer revenues and affordability in all segments deteriorated sharply, as evidenced by lower levels of transactional revenue and credit under underlying, and the amount of debt relief requested by customers, leading to an increase in arrears and non-performing loans, ”the financial group said.

Profit for the year was 36% lower than in 2019, at R19 billion. Despite the good situation of the group’s capital, the board of directors did not declare a final dividend.

Declines were recorded across all segments of the group, including a 31% drop in normalized profits for its retail segment, ETFs, to R12.3 billion.

Rand Merchant Bank profits were hit 58%, with auto finance group WesBank falling 53%.

The impact of the Covid

“The Covid-19 pandemic is a once-in-a-generation event and has had a profound impact on the world. In South Africa, this resulted in the sharpest contraction in GDP since World War II. The lockdown has devastated the economy and it will be a long, difficult road to recovery, ”CEO Allan Pullinger said.

The group has seen a sharp increase in the number of clients requesting debt relief in the wake of the Covid-19 pandemic, registering 306,700 people with 792,000 signing accounts – 18% of its portfolio.

This was equivalent to Rand 229.6 million in relief offered to the entire group.

Personal customers were the most affected, accounting for 674,300 of these accounts.

The FNB provided assistance to business clients mainly in the form of payment holidays and additional assistance was offered to SMEs through the government guaranteed loan program.

For businesses, relief has been advanced on a case-by-case basis. The corporate relief was provided in the form of additional liquidity facilities, payment holidays and covenants waivers.

Outlook

Economic activity in South Africa is expected to start rebounding from the depths of the first half of 2020. This is mainly related to the easing of foreclosure measures and could stem the level of job losses and support the start of a recovery, said FirstRand.

“However, given the South African government’s limited ability to inject further stimulus into the economy, household and business balance sheets will suffer permanent damage.

“This will limit the extent to which the economy will be able to recoup the production losses suffered in the first half of the year. As a result, credit growth to the private sector will remain weak and activity levels will continue to be lower than before the crisis, ”he said.

The group said the economic impact of Covid-19 will continue to put acute pressure on the group’s performance for the remainder of calendar year 2020.

“Post-foreclosure trends are improving as the economic recovery slowly emerges, however, activity levels will remain subdued on a relative basis, balance sheet growth will be moderate, and credit performance will not improve significantly. significant. “

FirstRand predicts an upward trajectory in second half earnings through June 2021, although the absolute level of earnings on an annual basis is unlikely to return to June 2020 levels, he said.


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