Retail lending had started to slow down as affordability and interest rate pressures started to pile into the pockets of South Africans, FirstRand CEO Alan Pullinger said yesterday, although he highlighted that resurgent corporate replacement activity and infrastructure development would cover up for this.
FirstRand yesterday posted a 12% firming in normalised earnings, which amounted to R36.7 billion and yielded a similar rate of growth in annual dividends at 384 cents for the full year to the end of June 2023.
However, shares in the company were 4.1% weaker at R68.13 yesterday on the JSE – where the owner of RMB, WesBank, Aldermore and FNB has a market value of about R384bn.
“Mortgages and housing and finance is already starting to slow because it is very interest rate sensitive, with data showing that demand for mortgages is starting to slow down,” Pullinger told “Business Report” in an interview.
He added that there had also been a slowdown in vehicle finance and unsecured lending on the back of “affordability issues” especially to do with “imported inflation and currency” issues as South Africans reduce their spending appetite on credit cards.
Despite these challenges, FirstRand said advances, deposits and depositors had now surpassed pre-pandemic levels.
“It’s tough out there; it’s a very tough environment but under the circumstances, commercial and corporate lending will be the one to try and keep some growth going,” said Pullinger.
He also said at a results presentation for FirstRand that “a pressing need for electricity capacity has seen the private sector increase” investment.
This was expected to replicate across other sectors such as rail and port infrastructure, with FirstRand financial and banking units actively engaged in securing funding facilities for public-private partnership projects.
During the year to end June, FirstRand turned in a R12bn economic profit, with a net asset value of growth of 10% attained. This mainly emanated from the capital deployed in the UK operations. Despite the weak macroeconomic environment in South Africa and the UK, where inflation and rate pressures were elevated, FirstRand returned a credit performance that was in line with expectations although tapering off in the second half.
Total group non-interest revenue (NIR) was 11% stronger, supported by 8% growth in fee and commission income, 16% growth in trading and other fair value income, and a 26% stronger increase in insurance income.
Normalised profits before tax in FNB grew by 12% while the return on equity went up by a massive 41.7% during the period under review. WesBank was similarly up by 16% and 22% in terms of normalised profits before tax and return on equity, respectively, while RMB also had a stronger out turn for the same indicators.
“Uncertainty remains high. In South Africa and across most of the broader Africa jurisdictions where the group operates, rates have probably peaked, but will only start to trend down mid-2024. In the UK rates will continue to rise,” explained Pullinger.
Elsewhere in Africa, sovereign indebtedness weighed down on Ghana while high levels of debt and the cost also posed risks in other regional markets during the period. Global capital flows also slowed down, with pressure on capital accounts reflecting forex reserves, a situation that was more marked in Nigeria.
RMB said in 2022 that “market activity remained muted in Nigeria, reflecting investors’ ongoing risk aversion”.
Over the past few years, Nigeria has been problematic for South African companies, with headwinds emanating from currency volatility and an uncertain regulatory environment that has hobbled entertainment firm MultiChoice and telco MTN.
BUSINESS REPORT