FirstRand joins its peers in an expected earnings decline of more than 20%
FIRSTRAND declined more than 3 percent during yesterday’s trading after the financial services group warned that its full-year earnings would fall more than 20 percent during the year end to June, driven by materially higher credit impairment charges.
FirstRand said that its headline earnings per share, earnings per share and normalised earnings per share for the year to end June to be more than 20 percent lower compared to 497.2 cents and 538.6c reported last year.
“The main driver of this slowdown in earnings growth is the materially higher credit impairment charge for the period, driven partly by deterioration in the lending portfolio performance, but more significantly by the forward-looking assumptions used in the modelling of expected credit losses,” the group said in a trading update. FirstRand’s portfolio of integrated financial services businesses includes FNB, Wesbank, RMB, Aldermore and Ashburton Investments.
The group joined industry peers such as Absa and Standard Bank who recently warned about a more than 20 percent decline in their earnings as the coronavirus (Covid-19) pandemic continued to disrupt global markets.
It said tther drivers of the decline in earnings included the negative endowment impact on the back of interest rate cuts and margin pressure.
The South African Reserve Bank Monetary Policy Committee slashed its repo rate by 50 basis points in May, bringing its cuts to 275 basis points in 2020.
“Non-interest revenue growth has also shown a marked decline, due to lower absolute volumes during the lockdown period,” the group said.
Despite the expected decline in earnings, FirstRand said it did not have a final view of the performance of the lending books during May and June. It said it was closely monitoring the effect of the Covid-19 pandemic on its performance.
“IFRS 9 requires the group to consider forward-looking information in the calculation of expected credit losses, therefore the group has estimated an increase in customer stress caused by the pandemic and resultant economic pressures anticipated over the next twelve to eighteen months,” the group said.
It added that this stress has been incorporated into the calculation of the group’s expected credit losses and has resulted in a material increase in provisioning even though the year to June only includes three months of the pandemic. “With regard to capital, funding and liquidity, FirstRand supports the actions taken by the South African Reserve Bank.
The group remains well capitalised and its capital and liquidity ratios are expected to remain strong and well above required minimums,” the group said.
FirstRand will release its full-year results on September 10. FirstRand’s share price closed 2.69 percent lower at R43.80 on the JSE yesterday.