FirstRand faces UK car loan redress uncertainty amid rising provisions

Key topics:FirstRand may face huge UK car-loan compensation costs.Provisions rise to 6.26bn rand; CEO warns limits affect lending.Record profits and strong capital help absorb potential losses..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up for the BizNews channel here..By Adelaide Changole.FirstRand Ltd., Africa’s biggest lender by value, said the fate of its UK unit could rest on a regulator’s ruling over compensation banks have to pay to consumers who believe they were missold car loans.The Johannesburg-based lender almost doubled provisions set aside to cover potential compensation and other costs linked to the probe into motor-finance commissions to 5.8 billion rand ($333 million). The total costs - including provisions and others related expenses - now stands at 6.26 billion rand. FirstRand does not plan to set aside anymore, Chief Executive Officer Mary Vilakazi said. It’s obvious what happens “if we have to spend an amount that we think is beyond what is reasonable,” Vilakazi said in an interview on Bloomberg TV. “Beyond this level, it becomes an unreasonable expectation of the cost of a redress scheme. If we have to pay material amounts in the redress scheme, then we don’t have resources for lending and that puts us out of the market.”.Read more:.African debt crisis emerges as top risk for lenders, warns outgoing Nedbank CEO.FirstRand set aside more money despite winning a major reprieve in the UK case. The nation’s Supreme Court said that banks should only pay compensation in the most serious cases. The additional protection for the South African lender came after the Financial Conduct Authority said payouts would likely be at least £9 billion ($12.2 billion) and as much as £18 billion. The regulator is expected to announce the compensation plan in October. “It’s been largely unhelpful, because they communicated a range, which we don’t know where it comes from,” Vilakazi said. “So we will still be faced with quite a number of uncertainties after reading that statement.”FirstRand was dragged into the case through its MotoNovo unit in the UK, which it acquired from Julian Hodge Bank in 2006. The company now commands about 10% market share in car finance in Britain. The lender’s overall business in the UK comprises about 10% of its earnings and about 20% of its balance sheet, it has said previously. The company set aside 2.96 billion rand, adding to the 3.3 billion rand allocated in 2024, FirstRand said in a statement on Thursday.FirstRand’s profit still rose to a record, with net income climbing 10% to 41.8 billion rand compared with an estimate of 41.2 billion rand by analysts in a Bloomberg survey. “Strong operating performance by FirstRand has allowed the group to absorb these costs,” Baron Nkomo, an analyst at a South African unit of JPMorgan Chase & Co. wrote in a note to clients. “We are bullish on FirstRand, believing it to be the highest quality bank in South Africa, and find its shares attractive.”The bank’s shares surged 6.1% in Johannesburg, the biggest advance in more than a year.The lender is still sitting on excess funds, with its common equity tier-one capital ratio at 14%. The metric has exceeded the board-approved range of 11% to 12% since 2019. Avior Capital Markets estimates that the lender has 3.5 billion rand in excess cash on its books, the second highest of South Africa’s biggest lenders.The bank’s return on equity climbed to 20.2%, beating analyst estimates of 20%. Vilakazi expects the lender to sustain the earnings growth into 2026. More From the Interview:On compensations:“If it’s proportionate, if it’s fair, if it’s in line with the principles that the FCA themselves have articulated, then I think that’s something we will be able to get ahead of”“But if it’s not proportionate, I think then it is possibly another period of loss of engagement, because what you can’t do is pay back more money than you ever made. Then there’s no commercial reason why we would have been in that business.” On earnings:“I expect us to do as well, actually, if not better than the current year.”.© 2025 Bloomberg L.P.

FirstRand faces UK car loan redress uncertainty amid rising provisions

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