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Jacques Celliers, CEO of First National Bank, spoke to Jackie Cameron of BizNews about FNB’s performance after releasing results. Normalised profits were down, but return on equity was up 30%. Celliers also gives insights into FNB’s outlook on the looming land expropriation bill and what that could mean for property owners. – Jarryd Neves
FNB CEO Jacques Celliers on performance results:
It was a it was a very different year. At the end of the period we were able to produce some results. I think we are very chuffed with banking. There was a 20% drop in earnings, but 30% ROE and very stable business. Being able to help our clients through a very difficult time [and we] continue to do so. Operationally – given our technology platforms and digital execution – it is really comforting to see that even our customer base has grown.
On the saving habits of South African consumers:
From a savings perspective – across our client base – we saw a big flow of money into the liability part of our business. This was not a year where people went out, started businesses, buying merging and expanding. Many people were able to sit a little bit on their savings and their cash flow. Very few people went overseas [or spent on] entertainment, so lots of savings came to.
Also, the interest rate savings and reductions helped people with their cash flow. I think many of our clients were in a position to save a bit more in the year. That puts them into a very good position as the economy starts opening up, to use some of those savings and grow, expand and build businesses.
I think, by and large, a reflection of the health of our clients – not necessarily of the broader economy. But certainly from our perspective, we are blessed to have an amazing, resilient climate.
On bucking the trend with FNB results:
We had a very deliberate strategy about looking after our existing customers and not going out on acquisition drives, with the balance sheet drive. We focused all of our attention and our resources on our existing client base to get them through the cycle. We also made sure that we provided very well right up front – as opposed to thinking that we would navigate ourselves through this thing. Most of our upfront provisions – we were grateful that at least it looks as though the assumptions we made, we are on the better side of the highway – we set ourselves out at. From a balance sheet perspective, the fact that we’ve got some firepower now to support the growth of our clients – as the economy opens up 0 is a very good space to be.
On land expropriation:
It would be nice if we could have some certainty about policy. Policy in itself is not the problem. The problem is if there’s no certainty in policy. But at the moment, we’re not positioning ourselves for unnecessary disruptions and risk. It obviously does have an impact on valuations, because the market needs certainty before they really expand.
It’s a very well-documented, industry-wide conversation. We are monitoring and we’ve made our comments. We are part of all the dialog with the authorities. In the end, we’ve got comfort that the right things will happen. We will facilitate and play our part to try and support that outcome. Back to the topic of what it is that we’re looking for, is just certainty in policy. Then we can all then move on.
We don’t see this as a major impact on that ultimate driver of how we do banking in the agricultural world of property rights. I think there would be elements of environments where an adjustment will be needed and we could facilitate those. We’ve been in banking for 180 years. Rules and policies change. What we found over the years is that it’s just an adjustment or two. No different to when the credit regulation came into play in 2008. We obviously had to adjust lots of our origination policies and credit processes, and we will adjust accordingly.
On mortgage payments and land expropriation:
There’s a legal construct. Our mortgages are not linked necessarily to that ‘walk away from your debt’ perspective. At the moment, there’s a legal construct under the Constitution and we respect that.
On land expropriation and financial forecasts:
We don’t see it as a major deterrent in how we lend. Our criteria is quite stringent and focused on leveraging the actual asset. But very importantly, when we originate credit, we do so into cash flow activities. It’s the same with your mortgage. We wouldn’t want to come and take your house from you.
We lend and extend credit to people that can afford the credit. So although we have a security of an asset, ultimately that’s not the basis of our origination strategy. We look at cash flows, we look at viability of businesses. We look at the viability of the farming activity. Those things determine our origination and credit strategies. We are not out there to try and create too much of a focus on the valuation of the property itself – although they have big impacts in how we determine the lending criteria.
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