FirstRand sees ‘acute’ pressure for rest of year

FirstRand said the economic fallout of the coronavirus pandemic will continue to place “acute pressure” on earnings for the rest of the year, with an improvement only likely in the first half of 2021.

Profit excluding some items and accounting adjustments dropped 38% to R17.3 billion in the 12 months through June, FirstRand said yesterday.

It didn’t declare a final dividend in line with guidance from South Africa’s central bank for lenders to preserve their capital levels.

While there’s been an improvement since South Africa eased lockdown restrictions, activity levels would remain muted, the lender said. FirstRand anticipated an “upward trajectory” in profit in the six months through June 2021, although the absolute level of earnings on a year-on-year basis are unlikely to revert back to June 2020 levels”.

Credit provisions at SA banks have soared after the government shuttered all businesses except essential services at the onset of the outbreak, compounding the woes of an economy already battling a recession and 30% unemployment.

While Absa, one of three local lenders to report first-half results last month, indicated a slightly better outlook for the rest of the year, banks have battled to give clear guidance amid ongoing uncertainty caused by the virus.

“Activity levels will remain muted on a relative basis, balance-sheet growth will be subdued, and the credit performance will not materially improve,” FirstRand said. “Given the SA government’s limited capacity to inject further stimulus into the economy, there will be ongoing permanent damage to household and business balance sheets.”

Still, the industry remains well-capitalised and has helped the government disburse a R200 billion state-guaranteed loan programme to aid small- and medium-sized businesses hit by lockdown restrictions. Independently, lenders have also restructured credit and offered other relief to customers and businesses. – Bloomberg