Return to 2019 peak ‘imminent’, says FirstRand CEO, following highest 6-month performance ever | Fin24

• The owner of FNB says it expects its earnings to reach or surpass 2019 levels in a matter of months.
• The banking group’s earnings for the 2021 financial year fell R1.3 billion short of 2019 levels.
• FirstRand says it has multiple strategies and projects going to stand out from its competitors.

FirstRand says it will get back to its 2019 level of earnings within a few months. The owner of FNB, RMB and Wesbank ended its 2021 financial year in June just R1.3 billion short of reaching the same level of normalised earnings it reported in 2019. It wants to surpass the 2019 peak by the end of this December.

“In terms of when that’s going to happen, it is imminent. It is clearly going to happen in this next reporting period,” said FirstRand Group CEO Alan Pullinger.

The bank initially indicated that it expected to reach 2019 levels during the 2023 financial year. But then, between January and June this year, recovery in its operations surpassed FirstRand’s expectations.

The banking group had already seen a sharp rebound in its earnings in the first half of its financial year, ending in December 2020. But this accelerated in the second half, resulting in FirstRand recording its highest six-month performance to date.

All of FirstRand’s franchises put their best foot forward in terms of earnings growth. The UK operations delivered a 217% increase, Wesbank 47%, RMB 25% and FNB’s earnings grew by 33%, thanks to the better-than-expected decline in credit loss ratios.

This not only pushed FirstRand’s normalised earnings to R26.6 billion, but the group’s return on earnings is now back to its target range at 18.4%.

Multiple projects to fend off competition

While banking competition is the stiffest it’s been in SA following the entry of Nigeria’s Access Bank and the launch of Bank Zero this year, FirstRand expects to continue beating its best scores. The company has been hard at work bolstering its products – particularly at FNB, its biggest business.

The group is doing the most in SA because of the pressure it is facing to defend its market share, given that it generates 80% of its earnings and even more economic profits here.

Pullinger said FirstRand is well aware that its local banking operations are mature. But they are not old.

He said the group has multiple project themes running to optimise its operations. The group is working on fully decommission its old technology platform, including its core banking systems, although this might take some time.

But core to FirstRand’s strategy to stand above its competitors’ shoulders is its platform business, which has seen FNB expand to more non-bank products.

But FirstRand is also starting to reap the benefit of expanding its operations outside SA. Pullinger said the group was confident that it can build a larger and more valuable business in the UK, where it owns a retail bank, Aldermore and car financier, MotoNovo.

In just three years after acquiring Aldermore, the UK operations already contributed more than Wesbank to FirstRand’s earnings in the year ended in June and in the 2020 financial year.

FirstRand is also eyeing the East African region as a market of interest for future expansion.