Strong rebound for FirstRand

FirstRand has extended the payment relief offered to many of its customers in “certain industries” and those who are self-employed as the effects of the Covid-19 pandemic and lockdowns continue to hamper their ability to service their debts.

This is across the group’s “retail, commercial and corporate segments” and has been done on what the bank terms a “cautious basis”.

In its retail portfolio (FNB and Wesbank), it has granted relief for R75.8 billion in loans for over 212 000 customers. This comprises 16% of its total retail credit portfolio.

The bulk of the bank’s relief arrangements terminated by the end of September 2020, but these loans remain “classified as in relief” until they settle the full relief amounts.

For retail clients, the bank ringfenced relief as separate loans which enabled customers to continue paying instalments on their primary debt agreements.

Extended relief

Since September, however, R9.9 billion in retail loans has been granted extended relief. This equates to 13% of the ‘existing’ relief portfolio (or 4% of retail loans in relief).

The corporate relief portfolio offers some clues as to the industries where clients, and employees who are clients, remain under stress.

The group says certain sectors are still severely impacted by the Covid-19 lockdown, citing private healthcare, real estate, and hotels and leisure.

Relief for corporate clients totals R31.4 billion, or “9% of total advances, of which R8.8 billion related to reapplications”.

“The current relief amount includes several well-rated clients who continue to approach the bank proactively in the management of their liquidity facilities.”

FirstRand says as at December 31, “of the R198.5 billion balances under relief, only 6% were in stage 3. This reflects an appropriate underwriting approach to relief and the better than expected rebound over the past six months.”

FNB CEO Jacques Celliers says the original relief for three weeks was extended for three months and “many customers got out of that quite okay”.

Read: You don’t qualify for bank assistance? Good, you’ve dodged a bullet

By using its access to live data, particularly by tracking and following transactional behaviour, the bank was able to target specific assistance and additional help for specific customers. Celliers offers an example of two coffee shops at Bank City – one closed and one managed to keep its doors open last year. He says a blanket approach to provide assistance to “all coffee shops” would not have been useful.

“Certainly, there are still some sectors that are not quite there yet,” says Celliers. Tourism and entertainment are the obvious examples.

Context

For the six months to end-December, the group reported a strong rebound from the impact of the hard lockdown that hit results for the year to June 2020. While comparatives (year-on-year) are lower, the results need to be looked at in six-month segments to see the rebound.

Normalised earnings per share were 250c in the six months to December 2019, 58c for the six months to June 2020, and 197c for the most recent six months. Year-on-year, this represents a 21% decline, but earnings more than doubled from the June low. Return on equity is 15.6%, far lower than the group’s level over the long-term in excess of 20%.

Read: Remuneration is the focal point of FirstRand AGM (Dec 2020)

Celliers says: “If you asked me a year ago heading into a global pandemic, what would I bank? I’d have taken a 20% drop in earnings, a growing customer base, and multiple local as well as global awards. Our customers are intact, our systems are okay” – and the group’s balance sheet is robust.

The bank has declared an interim dividend of 110c (down 24.7%).

Alan Pullinger, CEO of FirstRand, says: “Over the past six months, FirstRand accreted capital and strengthened its balance sheet, enabling the group to declare an interim dividend.”

Pullinger says: “Since June 2020, earnings have recovered faster than expected driven by a better than anticipated rebound in the economy, which has supported transactional volumes, growth in deposit balances and an improved credit experience.… The level and speed of improvement in the group’s performance is testament to the quality of FirstRand’s portfolio and the strength of its customer franchises.”

The group’s credit loss ratio as at December 31 was 1.46%, from 0.95% a year prior (but lower than the 2.87% in June 2020).

Exclude the UK operations (Aldemore), and the credit loss ratio is 1.64%.

Credit loss ratio	Dec 2019	June 2020	Dec 2020
Residential mortgages	0.22	0.64	0.47
Wesbank (Vehicle & Asset Finance)	1.49	2.64	2.04
FNB Card	4.25	6.85	5.14
Personal loans	8.29	12.06	9.36
– FNB	8.29	11.44	8.39
– Covid-19 relief	N/A	32.99	21.13
Total retail	1.95	3.09	2.70
Commercial	0.97	2.39	1.46
Corporate	0.07	0.95	0.48
Rest of Africa	1.29	2.49	2.32
UK operations	0.53	1.23	0.83
Total group	0.95	1.91	1.46

In both the commercial and corporate segments, the bank notes that non-performing loans (NPLs) as a percentage of advances increased to 2.44% from 2.18% in December 2019 (June 2020: 2.28%), reflecting:

• Specific high-value counters in commercial property and asset-based finance migrating to NPLs;
• Higher levels of operational NPLs in the small- and medium-sized enterprises (SME) segment, reflecting the impact of lockdown restrictions and the weak environment, together with the migration of clients who did not receive relief;
• Migration of a limited number of loans to private equity investee companies into NPLs due to stress events in their particular industries; offset by
• A decline in investment and corporate bank NPLs due to restructure, partial settlement and write-off of corporate counters.

Customer numbers have resumed growth, with FNB’s retail base up 2% and its commercial clients up 9%.

Its total base is 10.34 million, including 1.82 million customers in the rest of Africa operations.

eWallet

Over and above this, FNB has 2.83 million eWallet customers who have received funds and whose eWallets have been accessed at least twice in the last six months of last year. In the period, the value of money sent to eWallets declined by 5%, with the value of withdrawals at R17 billion.

eWallet transactions now account for nearly a third (31%) of the bank’s ATM transactions.

But eWallet is facing increasing competition in the payment, wallet and entry-level account space.

Celliers says that while it is an “exciting space”, if you can’t get the wallets funded (get money into accounts), you “can’t get them to scale”.

He says that’s often where competitors struggle. He adds that the ecosystem “will mature in the next two to three years, and we may yet see interoperability of wallets”. He expects regulatory frameworks to normalise – the gap will narrow between requirements for wallets and for accounts.

Digital push pays off

The deliberate and sustained push to get customers to use its digital channels saw it end the calendar year with over six million digitally active customers. These customers are performing 130 million logins across the bank’s app, online and USSD platforms. The bank’s app has 3.9 million active users and logins are up 41% year-on-year.

FirstRand says the “group’s operating environment remains challenging, particularly given the risk of a third wave heading into winter and the projected timing of vaccinating the desired 67% of the population”.

It adds: “The economy continues to open up and while the group expects origination levels to remain muted, transactional volumes are expected to trend back towards pre-pandemic levels by the fourth quarter of the financial year.

“The benefits of this improving trend are likely to be dampened by the lag effect of rising arrears and non-performing loans.”

Read: Demand for Covid-19 Loan Guarantee Scheme ‘remains below expectations”

Listen: FirstRand CEO Alan Pullinger discusses FirstRand’s interim results to end December 2020