FirstRand prepares for rising impairments

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FirstRand prepares for rising impairments

Published Date: 2020-06-05 | Source: Stephen Gunnion | Author: Stephen Gunnion

FirstRand prepares for rising impairments

The banking group says full-year earnings will decline as it accounts for an expected increase in credit impairments.

FirstRand is the latest bank to warn of lower earnings due to the impact of Covid-19 and the recent interest-rate cuts aimed at softening the blow to the economy. Other banks, including Absa, Capitec, Nedbank and Standard Bank, have also guided shareholders to expect lower earnings.

In a trading statement, FirstRand said although it didn't have a final view on the performance of its lending books for May and June, it was almost certain that earnings, headline earnings and normalised earnings per share for the year to end-June would be more than 20% down from last year. It blamed this mostly on a materially higher credit impairment charge for the period, driven partly by the deterioration in the performance of its lending portfolio, but more significantly by the forward-looking assumptions it uses to model expected credit losses in the future.

Under International Financial Accounting Standards (IFRS), banks are required to consider forward looking information when they calculate the credit losses they expect to incur. Although this year's results would only include three months of the pandemic, it said its forward calculations resulted in a material increase in provisioning due to the customer stress caused by the pandemic and the resultant economic pressure that was anticipated over the next 12 to 18 months.

FIrstRand said earnings would also be negatively affected by the negative endowment impact of the 275 basis point reduction in interest rates this year, while non-interest revenue growth had also shown a marked decline due to lower transaction volumes.

FIrstRand's results are scheduled for release on 10 September. Its shares fell 2.7% to R43.80 yesterday.





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