Discovery on Tuesday published financial results for the year ended June 2018, providing an update on its intention to launch a commercial bank before the end of the year.
The insurer advised shareholders in October 2017 that it had been granted its banking licence – however, the Registrar of Banks put certain conditions on the process.
One of those conditions was that a 25.01% shareholding in Discovery Bank by FirstRand Investment Holdings should be reduced and ultimately exited over time.
FirstRand’s involvement with Discovery is through the Discovery Card product, which is a precursor to the group’s banking ambitions, offering customers limited banking services underwritten by FNB.
Discovery said that in talks with FirstRand, it was agreed that it would be preferable for FirstRand to exit Discovery’s banking business completely, as soon as practically possible.
The proposed process includes:
- Discovery acquiring the effective 25.01% interest of FirstRand in Discovery Bank;
- Acquiring the remaining 25.01% economic interest that FirstRand currently owns in the Discovery Card joint venture business; and
- Discovery Bank acquiring all rights to the Discovery Card book and related assets which will be migrated over time.
“The total combined acquisition price payable by Discovery to the FirstRand Group will be R1.8 billion. Discovery has provided guidance that it plans to pursue existing growth initiatives without recourse to additional capital,” the group said.
According to Discovery, it was the above discussions and negotiations that led to a delay in launching the bank, but it assured that the bank build is progressing well and “remains within budget”.
It said the launch is expected before the end of 2018.
Discovery Card performance
Related to the group’s bank launch, Discovery said that the current Discovery Card had an excellent performance over the review period, which “bodes well for the bank”.
In the group’s segmental reports, the Discovery Card joint venture profits and additional 54.99% profit share (received by way of after tax dividends) have been reallocated to Discovery Bank and disclosed in “All other segments” and comparatives were restated where appropriate.
Profits for the Discovery Card JV with FNB grew by 17% to R414 million and revenue increased by 6% to R1 billion.
“In addition, Discovery’s credit card base is less sensitive to negative market conditions due to a substantially better risk profile. Both its percentage of non-performing loans and cost to income ratio were significantly below the average of other South African banks,” it said.
In late July, former Home Affairs director-general Mkuseli Apleni resigned from the government department to join Discovery Bank in an executive role.
The group started live-testing its banking capabilities, testing “system infrastructure, operating processes and regulatory engagement” earlier in the year.