FirstRand tightens its lending criteria
Readying for an economic slowdown
FIRSTRAND, Africa’s biggest bank by market value, said it was tightening lending criteria to guard against rising bad debt levels resulting from South Africa’s economic slowdown.
“There’s a credit cycle emerging and we expect bad debts to start ticking up so we are being proactive,” Johan Burger, who takes over as chief executive of the lender next month, said yesterday.
“On the retail side, we can see across the unsecured lending and vehicle and asset financing portfolios that arrears and non-performing loans are ticking up. On the corporate side, it’s just certain sectors – mining, metals, oil and gas.” South Africa’s economy contracted by 1.3 percent in the second quarter with consumers battered by power shortages, higher inflation and a rising interest-rate cycle.
The country, the world’s biggest platinum producer, has also been negatively affected by the drop in commodity prices, with the precious metal slumping 19 percent this year as the nation’s currency has also weakened to a record against the dollar.
“We are continually cutting back on our risk appetite,” Burger said.
“There is no doubt consumers are under pressure.”
Amid the economic head- winds, FirstRand’s full-year profit climbed 17 percent to R21.6 billion in the 12 months to June from R18.4bn a year earlier after its retail unit boosted income from fees and transactions, while its investment bank strengthened its balance sheet. Earnings per share, excluding one-time items, increased 12 percent to R3.81, FirstRand said in a statement, exceeding the mean estimate of 17 analysts surveyed.
First National Bank (FNB), its retail unit, showed the biggest growth, with earnings jumping 16 percent to R11.3bn. FNB achieved this by consistently focusing on cross-selling products from other units to retail clients, lending to wellknown customers, migrating clients to electronic platforms to save on costs and increasing the opportunities for those clients to transact with the bank, according to Burger.
PSG Wealth portfolio manager Adrian Cloete said though this was a tough trading environment, FirstRand always delivered on its promises and would probably grow because it was diversified and resilient.
“They have nice distribution systems, they will probably focus on their insurance and asset management portfolios, they also have wholesale and corporate divisions and a big equity portfolio.
“I think these are the areas they can grow strongly,” he said of strategy for the depressed macro-economic environment. – Additional reporting by Banele Ginindza