FNB hits 8.6 million customers in South Africa – but many are under severe strain
FNB’s retail customer base has grown to 8.6 million, but its customers are feeling the strain of high interest rates as the group’s credit impairment charges shot up 50% and credit losses increased.
In parent company FirstRands’ results for the year ended 30 June, FNB said that its retail customer numbers increased by 4% to 8.6 million.
This saw its Personal client base increase by 4% to 6.84 million (earning under R600,000 pa), and its Private client base increase by 5% to 1.76 million (earning over R600,000 pa).
The group’s broader African customer numbers grew by 8% to 2.2 million.
Over the year, FNB’s normalised profit before tax increased by 1% to R31.5 billion, while its return on equity increased by 36.9%.
FNB’s net interest income (NII) growth of 6% year-on-year was also driven by the strong performance of its deposit franchise, which increased by 10%.
“Despite challenging macroeconomic conditions and the resultant pressure on customer affordability levels, FNB grew advances 7%.”
FNB’s Non-interest revenue grew by 5% and was supported by new customer acquisition and improved transactional volumes.
“In support of the group’s strategy to diversify sources of NIR, FNB’s insurance activities continued to contribute strongly, driven by growth in insurance revenue and favourable claims experience in the life portfolio,” said the group.
Fee and commission income grew by 4% despite sub-inflation fee increases, R985 million in fee reductions and the reduction of fees for all low-value real-time payments with the introduction of PayShap.
“Despite the impact on fee and commission income in the current year, FNB believes this is the correct outcome for customers, and retail and commercial have already experienced a 34% increase in volumes since the reductions were implemented,” said the group.
Given the worse-than-expected interest rate cycle, the FNB retail portfolio is trending above its Through-The-Cycle (TTC) range.
However, the group said that all retail lending lines remain profitable due to its consistent origination for low-to-medium-risk customer cohorts.
That said, FNB’s credit impairment charge increased by 50% to R10,148 million (2023: R6,744 million).
The credit loss ratio also jumped to 185 bps (2023: 132 bps).
The group said that this was driven by:
- Strong growth in unsecured advances at higher coverage ratios, creating front-book strain;
- Accelerated NPL formation, especially in retail mortgages and in the retail unsecured lending books on the back of the higher interest rates and sticky inflation;
- Increase in both arrears as well as a significant increase in credit risk (SICR);
- Notable increases in debt counselling-related restructures;
- In anticipation of an improving macroeconomic outlook, releases from FLI models (mainly in H1) which benefited performing coverage with appropriate FLI stock remaining;
- Softer house price index growth, impacting coverage ratios in the residential mortgage portfolio;
- Marginal increase in write-offs and a reduction in post-write-off recoveries yearly.
FirstRand results
“Despite a tough operating environment, a standout feature of these results is the operational outperformance delivered by FirstRand’s portfolio in the second half of the year,” said FirstRand CEO Mary Vilakazi.
“This allowed the group to absorb a R3.0 billion accounting provision raised for the UK motor commission review, and still produce robust growth in normalised earnings of 4% and an ROE of 20.1%, which is well within its target range.”
“Excluding this provision, normalised earnings grew 10% and the ROE of 21.3% moved to the top of the
stated range. This is a testament to the quality of the group’s operating franchises, FNB, RMB, WesBank and Aldermore, and its disciplined approach to allocating financial resources to deliver superior shareholder value.”
“Pleasingly, the group’s high ROE and ongoing capital generation provided the capacity to grow its dividend 8%, which is significantly higher than earnings growth.”
RMB saw its NIR increase by 16% due to strong growth in private equity annuity income and further realisations. Knowledge-based fee income also grew strongly by 44%.
The overall group’s credit performance also performed better than expected, with the credit loss ratio at 81 bps, which is near the bottom of its TTC range of 80 to 100 bps.
“This performance reflects the benefit of the group’s approach to origination, particularly post the pandemic when new business was weighted towards the low- and medium-risk categories and was achieved despite the current pressures from high inflation and interest rates,” said FirstRand.
The group’s financials showed headline earnings increasing by 4% to R38 billion, while basic and diluted headline earnings per share also increased by 4% to 679 cents per share.
The group also upped its total dividend by 8% to 415 cents per share:
| Financials | FY23 | FY24 | % Change |
| Normalised earnings (Rm) | 36 634 | 37 988 | +4% |
| Headline earnings (Rm) | 36 700 | 38 054 | +4% |
| Basic and diluted headline earnings per share (cents) | 654.7 | 679.0 | +4% |
| Basic and diluted earnings per share (cents) | 648.1 | 681.4 | +5% |
| Credit loss ratio (%) | 0.78 | 0.81 | – |
| Total Dividend | 384.0 | 415.0 | 8% |
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