FirstRand bounces back with a dividend


FirstRand bounces back with a dividend


Published Date: 2021-03-08 | Source: Stephen Gunnion | Author: Stephen Gunnion

FirstRand bounces back with a dividend

The banking group says earnings have recovered faster than expected, driven by a better than anticipated rebound in the economy.

FirstRand is paying an interim dividend following a first-half performance that beat exceptions and after it strengthened its balance sheet. It says the economy has rebounded better than it anticipated, supporting its operations.

The banking group, which comprises FNB, RMB, WesBank and UK lender Aldermore, withheld a final dividend last year after making significantly larger allowances for bad debts due to the hard lockdown, which impacted the ability of its customers to repay their loans. The Reserve Bank's Prudential Authority has subsequently relaxed guidance advising banks to preserve capital due to the potential stress Covid-19 could exert on their balance sheets.

FirstRand reported a 20% decline in normalised earnings due to provisions it made for bad debt, with its impairment charge rising 59% to R9.4 billion. Credit impairment charges have to be booked upfront due to accounting regulations. Stripping out provisions, which it continued to build up since June, operating profit for the six months was only 1% down from a year earlier.

For the six months to end-December, advances net of credit impairments held steady as it took a more conservative approach to lending while deposits increased by 8%. Normalised earnings declined by 21% to R11-billion from R14-billion a year earlier. Headline earnings per share came in 20% lower at 198.9c. It reduced its interim dividend by a quarter to 110c per share.

The bank's credit loss ratio rose to 1.46% from 0.95% but was below the 1.91% reported at the end of June. Its normalised return on equity (ROE), a key measure of its financial performance, fell to 15.6% from 21.2% in December 2019 but was up from June's 12.9%. An ROE above the cost of equity was a pleasing performance given the current macro environment, it said.

While it doesn't expect the level of earnings for the first half to be repeated in the second six months, it still expects full-year earnings to exceed those reported last year.


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