FirstRand expects faster than expected economic recovery

The FirstRand Group, South Africa’s largest bank by market capitalisation, surprisingly declared an interim dividend for its half-year ended 31 December 2020. This comes only two weeks after the South African Reserve Bank allowed South African banks to resume dividend payouts due to the coronavirus pandemic. FirstRand expects a faster recovery in the South African economy than was first anticipated and the group’s conservative bad debts provisions transpired to be prudent management. The South African banks remain well capitalized and the resumption of dividends is reflective of that. The news has been appreciated by market participants with the share up around 1% on the JSE in early afternoon trade on Thursday. Banking expert Kokkie Kooyman shares his views on the banking sector in the article below. – Justin Rowe-Roberts

By Roxanne Henderson

(Bloomberg) – FirstRand declared an interim dividend after withholding its final payout last year while Africa battled the worst of the coronavirus pandemic, delivering a sign of confidence even with the continent’s vaccine plans at an early stage.

Africa’s biggest lender by market value said it’s acting “in anticipation of the expected rebound in the economy and to support the resultant balance sheet growth.” The Johannesburg-based lender has brought its dividend cover to the bottom end of its long-term range of 1.8 to 2.2 times, according to a statement on Thursday.

FirstRand’s adjusted earnings per share beat estimates as profits excluding some items and accounting adjustments dropped 21% to R11bn ($730m) in the six months through December. That was partly due to provisions for souring loans as borrowers struggled with lockdowns and other hardships related to Covid-19.

With global vaccination programs underway and prospects for faster economic rebound, FirstRand now expects earnings in the current year to exceed its performance in 2020. But the lagging effects of the coronavirus pandemic in its home market and the U.K. mean “the absolute level of earnings for the six months to December 2020 will likely not be repeated in the second half.”

South Africa’s banking regulator last month warned lenders that protecting cash reserves must still take priority over payments to shareholders as uncertainty from the pandemic remains, easing earlier guidance to avoid dividends completely. FirstRand is the first of South Africa’s big four banks to issue a payout and follows a surprise first-half dividend announcement by smaller Investec in November.

The owner of retail bank FNB saw weak demand for credit and muted transactional volumes even as business activity improved since June. FirstRand and its peers must now brace for the fallout from a potential resurgence in infections as South Africa heads into winter.

An inoculation drive that started on February 17 may help the nation avoid the worst of a third wave but it’s still expected to take 12 to 18 months to vaccinate two-thirds of the population.

For the country’s biggest banks, the crisis has further hampered growth in a struggling economy with rising government debt and forced them to set aside billions of rand against potential credit losses.

FirstRand shares have declined 5% over the past 12 months, the second-best performer on the FTSE/JSE Africa Banks Index, which fell by more than 8%.

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