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Edward West

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FIRSTRAND CUTS ITS GDP OUTLOOK FOR SOUTH AFRICA INTO NEGATIVE TERRAIN



FirstRand Bank's Wesbank. FirstRand said yesterday its cost of risk had trended
up in the second half. Photo: Armand Hough/ (ANA)

Published Jun 22, 2023

Written by

Edward West

By Edward West

 | Published Jun 22, 2023



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FirstRand, with subsidiaries including Wesbank, FNB and RMB, has reduced its
2023 gross domestic product growth forecast to a contraction of 0.1%, with the
likelihood of further interest rate increases.

It said in a trading update yesterday, however, that its forecast earlier this
year of a strong full year financial performance by the group, stands.







The banking group said that contrary to its initial expectations, the South
African macroeconomic backdrop had weakened in the second six months of the year
to June 30, 2023.

“Domestic economic activity has been particularly negatively impacted by higher
levels of load shedding, sticky inflation and the steeper rise in interest rates
than forecast at the beginning of the year,” the group said.

Markets had also reacted negatively to the government’s stance on the
Russia/Ukraine conflict, which had added to SA’s country risk premium.

MORE ON THIS

 * WEAK RAND PRESENTS EXPORTERS WITH OPPORTUNITY TO INCREASE SALES TO GLOBAL
   MARKETS

 * DECAY IN SOUTH AFRICA SHOULD NEVER BE ACCEPTED AS THE NEW ‘NORMAL’

 * GOVERNMENT AND THE DEPARTMENT OF EMPLOYMENT NEED TO REASSURE US THAT THEY CAN
   TACKLE EMPLOYMENT

“Bond yields have increased and the rand remains vulnerable,” the group said.



At the end of the interim reporting stage in March, the group had forecast
underlying earnings growth in the second half similar to that produced in the
first half.

“This operational performance has materialised in the second half, with the ROE
(return on equity) expected to remain at the upper end of the stated range of
18% to 22%,” the group said, adding that this was a “highly commendable
performance”.



It said the results had been due to the resilience of the customer-facing
businesses, positive momentum in deposit gathering activities and a disciplined
allocation of financial resources, in particular a targeted origination strategy
adopted in 2021 and early 2022.

FirstRand’s cost of risk had trended up in the second half. However, the credit
loss ratio was expected to remain below the group’s through-the-cycle range,
given the targeted origination approach.

This was despite the deterioration in the SA macro-economy, which had resulted
in more strain in the domestic retail books than was previously forecast.



However, “provisioning and coverage levels remain appropriately struck,” the
group said.

Net interest income (NII) benefited from growth in customer deposits and the
positive endowment impact from higher interest rates.

Cost of funding increased as customers migrated to higher-yielding products and
the group also accessed institutional markets.

NII also benefited from advances growth, which in SA came from momentum in
retail vehicle asset finance (VAF) and strong demand from commercial and large
corporate clients.

Advances growth was trending as expected in the other retail portfolios. The
combination of higher rates and inflation had caused affordability pressures in
certain consumer segments, which dampened demand.

In the UK, as guided in March, the second half momentum in advances growth
slowed in residential mortgages and retail VAF.

Non-interest revenue (NIR) growth was slightly ahead of management expectations.

Fee and commission income at FNB was aided by fee increases in July, the benefit
of higher inflation on commission income and customer growth, which drove up
activity levels and volumes.

Insurance revenue, including some reserve releases from better claims
experience, also continued to contribute positively.

Costs continued to trend significantly higher than inflation, caused mainly by
increased incentives, higher US dollar- and pound sterling-denominated spend,
headcount increases, normalisation of certain costs such as marketing and
travel, and ongoing investment in growth strategies.

The cost-to-income ratio for the 2023 financial year was expected to be similar
to the prior year. The group’s capital and liquidity levels remain strong and
above internal targets.

BUSINESS REPORT



Related Topics:

business2023Central BankingFree Market EconomyRandCurrency

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