By Renee Bonorchis
(Bloomberg) — FirstRand Ltd., Africa’s biggest bank by value, has cut back on extending credit because of slowing growth in its home market of South Africa and the rest of the continent.
“This year we’ve taken a further decision to make further cuts on credit granting, so asset growth will drop,” Johan Burger, chief executive officer of the Johannesburg-based lender, said today by phone. “The retail cycle has turned and the rest of Africa has also seen some uptick in non-performing loans.”
Growth in South Africa slumped to its lowest since a 2009 recession in the fourth quarter of last year when the country recorded annualized expansion of 0.6 percent. The decline in commodity prices also hurt economies like Nigeria and Zambia where FirstRand has operations. The lender will now be more cautious about extending its operations across the continent and has raised provisions for non-performing loans, Burger said.
“The uptick is nothing to be concerned about and there’s a muted impact on our income statement because we proactively raised provisions,” he said.
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Amid the economic challenges, FirstRand’s fiscal first-half net income rose 1.7 percent to 10.5 billion rand ($683 million) in the six months ended Dec. 31, from 10.3 billion rand a year earlier, the company said in a statement on Tuesday. Earnings per share excluding one-time items climbed 3 percent to 1.85 rand and the dividend increased to 1.08 rand a share from 0.93 rand. Non-performing loans increased 8 percent.
FirstRand, with operations in nine African countries, runs a consumer bank, a vehicle-financing unit, an asset manager and an investment bank. It has steered away from acquiring assets, growing organically across the continent.
In the second half “advances growth is likely to decline, as further cuts are made given the deteriorating outlook, and corporate activity is unlikely to pick up significantly,” FirstRand said in the statement. “Retail and corporate bad debts are likely to increase further in the second half.”
FirstRand dropped as much as 5 percent and was 4.9 percent lower at 46.85 rand as of 9:42 a.m. in Johannesburg, its biggest drop in almost three weeks.
South Africa’s FirstRand favours developed markets as Africa growth slows
JOHANNESBURG, March 8 (Reuters) – South Africa’s biggest lender by market value FirstRand Ltd is looking for growth in developed economies in a strategic revamp prompted by slowing growth and rising risks elsewhere in Africa, it said on Tuesday.
The bank, which operates in Tanzania, Nigeria, Zambia and Botswana among other African countries, is the latest company to cast doubt on the continent’s prospects. Last week South African insurer MMI Holdings said it could exit some African markets, while British bank Barclays Plc said it would sell down its Africa business, a move that could mean the end of its presence after more than a century on the continent.
FirstRand reported only a slight increase in half-year profit on Tuesday as Africa, once at the heart of its expansion plans, has been depressed by a slump in prices of oil and other commodities – export mainstays of many economies – partly due to a slowdown in leading consumer China.
“Given the elevated risks, given the impact of lower commodity prices on many of these countries, we will become more cautious in the speed deploying capital in those markets,” FirstRand’s Chief Executive Officer Johan Burger told Reuters on the sidelines of the company results presentation.
Burger said FirstRand would instead invest in expanding its fast-growing London-based car finance business, Motonovo Finance, in the UK and Channel Islands.
FirstRand reported headline earnings of 185.4 cents per share (EPS) in the six months to end-December, hardly growing as the effects of weak consumption and investment spending at home and the rest of Africa weighed.
Headline EPS is the main profit measure in South African that strips out certain one-off items.
Shares in FirstRand were down 3 percent by 1240 GMT.
“The group’s view is that over the medium term, developed market dynamics represent an attractive risk/return profile for shareholders,” FirstRand said in its results filing.
Lending to companies had become the mainstay for banks in South Africa as lenders retreated from the high margin but risky business of giving personal unsecured loans.
But FirstRand said a slowing South African economy, estimated to grow at less than 1 percent in 2016 due to drought and the collapse in commodity prices, had tempered corporate credit demand.
The bank’s net interest income, the difference between what banks charge borrowers and pay out to depositors, rose 9 percent to 20.8 billion rand ($1.35 billion) in the six months through December, with cross-border African business posting the slowest rate of growth.
