FirstRand says consumer spending back at pre-Covid levels
South Africa’s biggest bank by market cap, FirstRand says that the country’s economy has rebounded at a much faster rate than initially expected, with consumer spending back at pre-Covid levels.
The financial services group said on Monday (7 June) in a trading update for the year ended June 2021, that it expects headline earnings per share (HEPS) and earnings per share (EPS) to increase by more than 35% – from 308.9 cents and 303.5 cents, to 417 cents and 409.7 cents, respectively.
It said that normalised EPS of 307.8 cents in 2020, is likely to reach 415.5 cents.
“It’s important to note that the absolute level of earnings for the six months to December 2020 will likely not be repeated in the second half,” FirstRand said.
“In South Africa, the group has seen the economy rebound much faster than initially expected and this, combined with ongoing strong collections, has resulted in significantly lower impairments than predicted.”
It said that given the level of improvement in the cost of credit, the group is now experiencing a stronger second half performance than expected.
Net interest income (NII) is tracking at a similar level to the first half and is expected to be marginally up year-on-year. This is despite the significant endowment impact and reflects the benefit of certain asset and liability management strategies, FirstRand said.
It noted that cost growth will normalise higher than the 1% increase reported for the six months ended December 2020.
Regarding the balance sheet, FirstRand said that the shape of the group’s deposit franchise remains in line with expectations. “Current trends indicate that customers are utilising discretionary savings as the economy has opened up. Consumer spending is now back at pre-Covid levels,” it said.
Advances growth has remained muted, reflecting the group’s cautious risk appetite and its focus on meeting the needs of its main banked customers in the retail and commercial segments. Corporate activity remains subdued, FirstRand said.
The group said it has maintained its strong capital and liquidity position which allowed the board to re-introduce a dividend pay-out at the lower end of its cover range in March 2021.
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