FNB customers taking pain

FNB customers continue to experience challenges paying off their debts despite signs of improvement in the macroeconomic environment.

For the six months ended 31 December 2024, FNB’s normalised profit before tax (NPT) grew by 5% to R17 billion, while its ROE stood at 39.0%.

FNB’s net interest income grew by 5% period on period and was primarily driven by the strong performance from the deposit franchise, with deposits increasing 10% domestically and 11% in Africa.

Although customer affordability levels remained under pressure, FNB grew advances by 6%. Retail advances required risk cuts as arrears manifested across portfolios, leading to 4% growth.

There was an origination tilt to commercial and SME customers, anchored by the bank’s expectations for improving business confidence and capacity investments in these segments.

The advances margin reduced slightly to 3.75% period-on-period but remained flat from June, highlighting the origination tilt to commercial and low-to-medium risk in retail.

The group said its credit performance is also reflected by its origination strategy and the changing economic environment.

“The macroeconomic pressures experienced in the past year have shown some signs of easing,” said the ‘Big Four’ bank.

“This is evident in the slowing momentum of impairments, which are trending better than expectations, especially in the retail portfolios.”

“However, period-on-period impairments remain elevated as credit impairments were more benign in the comparative period to December 2023.”

FNB’s credit impairment charge increased by 21% to R5,034 million (December 2023: R4,177 million), and the credit loss ratio jumped to 176 bps (December 2023: 155 bps)

Despite the year-on-year increase, FNB said that the credit loss ratio trended down from June 2024. The credit loss ratio stood at a staggering 185 basis points in the year ending June 2024.

Parent group FirstRand said that the period-on-period movement was driven by:

• The aforementioned strong growth in the SME subsegment and transactional lending products in commercial 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 inflation;
• Increase in arrears and a significant increase in credit risk (SICR);
• Direct customer interventions in the period under review have resulted in slowing growth in debt counselling inflows, however, they remain elevated compared to historical averages.
• Responding to improvements in macroeconomic outlook, releases from forward-looking information (FLI) models benefited performing coverage;
• Despite an improving trend, FNB’s internal house price index growth remains subdued, impacting coverage ratios in the residential mortgage portfolio;
• There was an increase in write-offs and a marginal reduction in post-write-off recoveries period on period.

FirstRand

The latest results from FNB were found in its parent company FirstRand’s results for the period, with the broader group also including RMB, Wesbank, Ashburton and more.

FirstRand’s operational performance was better than expected, with the outcome benefitting from healthy top-line growth and disciplined cost management, particularly at FNB.

The group was also further supported by retail credit outperforming relative to initial expectations in South Africa and the UK,

“FirstRand continues to deliver growth and superior returns for shareholders. This is demonstrated in the 10% growth in normalized earnings, the 12% increase in economic profits and an ROE of 20.8%.”

“The group is pleased to declare an interim dividend of 219 cents per share, increasing in line with earnings,” said FirstRand CEO Mary Vilakazi.

“These are very pleasing shareholder outcomes given the challenging operating environment, and testament to the quality of the group’s customer-facing franchises FNB, RMB, WesBank and Aldermore.”

The group’s overall credit performance was also better than expected, with the credit loss ratio of 84 basis points below the midpoint of the through-the-cycle (TTC) range of 80 bps – 110 bps.

However, the group’s credit impairment charges did increase by 8% from R6.4 billion in the prior period to roughly R6.9 billion

The group also expected to have a strong performance in the second half of the financial year, with balance sheet growth expected to remain healthy, driven by similar advances and deposits growth.

“The group’s overall credit performance should trend better than the first half, resulting in a CLR at the lower end of the group’s stated TTC range,” said Vilakazi.

“This will be driven by a continued improvement in retail, with corporate and commercial showing a similar picture to the first half.”

“The UK operations CLR is expected to normalise closer to the bottom of its TTC range as the one-off benefits in previous periods unwind.”

Given the provision relating to the UK FCA’s review of motor commissions in the prior financial year, improving credit outcomes and cost management could result in full-year earnings growth above its target range.

The CEO added that the second-half absolute earnings will be marginally higher than the first half, while ROE is expected to remain within the group’s target range of 18% to 22%.