Reversal of bad debt lifts FirstRand profit

Category: Business News

Date Added: 10 March 2010

EDWARD WEST

Finance Editor

FIRSTRAND lifted normalised profit 1% to R4,61bn in the six months to December after its retail banking businesses started to benefit from a decline in credit impairments.

The overall impairment charge fell 13% to R3,2bn. FirstRand said its diverse portfolio of banking and insurance businesses had also helped to produce the result.

CEO Sizwe Nxasana said the group hoped for profit growth in the second half, but much depended on the economy.

The retail banking businesses should benefit from lower interest and inflation rates, but bad debts in the corporate and commercial banking operations may only peak by the middle of the year, even though these businesses had proven fairly resilient until now.

“We are extremely pleased … . We believe it reflects good organic growth from operations,” Nxasana said.

The group’s R4,04bn of normalised earnings reflect a significant recovery in profitability compared with the six months to June last year, although it was 3% below the level of December 2008. The interim figure was more than double that of the previous six months.

The improving banking operations reflected a reversal of two negatives: bad debts from FNB’s retail lending books and motor finance subsidiary WesBank; and losses from certain Rand Merchant Bank offshore trading portfolios.

Nxasana said the retail lending books at FNB and Wesbank were showing signs of recovery.

Investment bank RMB showed significantly better profit on a rolling six-month basis as losses from its international portfolios dropped and the investment bank, fixed-income currency and commodity businesses showed good client and deal flow.

The insurance business Momentum also reported good earnings growth due to a recovery in equity markets and lower market volatility combined with a strong operational performance and cost controls. Its overall normalised earnings increased by 15% to R850m.

FirstRand continued to focus on building its franchises in Africa and identified countries it believed were strategically important — Nigeria, Zambia, Mozambique, Tanzania and Angola.

A representative office in Nigeria was being staffed up and opportunities in the financial services industry, emanating from the banking reform process, were being investigated.

FirstRand was interested in all key segments of financial services — corporate, investment, retail banking and insurance on the continent.

China and India were SA’s important trading partners and positioning the group franchises to capture the trade and investment flows with these countries was an important element for the African strategy.

The focus on China and India was beginning to bear fruit, and transactional flows had increased, with several significant deals concluded through the relationship with China Construction Bank and the establishment of FirstRand’s branch in India.

FirstRand expected the economy to return to modest growth, but growth in advances would remain “extremely” low as levels of consumer indebtedness were still at historic highs.

“As consumers rebuild their balance sheets and economic activity rises, FirstRand’s retail franchises, FNB and WesBank, will gradually recover, particularly from the resultant reduction in bad debts,” said Nxasana.

RMB expected to continue its recovery, as losses from its legacy portfolios were likely to be much lower than for the year to June 2009.

“FirstRand’s balance sheet remained robust,” Nxasana said.

weste@bdfm.co.za

FirstRand

Half-year20092008

Revenue (Rbn) 23,66 32,32

Pretax Profit (Rbn) 7,22 5,77

Net Income (Rbn)4,52 4,31

Headline EPS (c)85,3 87,3

Dividend PS (c) 34 34

Source: Business Day