Big earnings boost coming for FNB owner

FirstRand, the owner of FNB, RMB and Wesbank, is expecting a significant increase in earnings despite the challenging operating environment. 

In a trading statement for the year ended 30 June 2025, the group said that the macroeconomic environment in South Africa and the other regions in which it operates remained largely as anticipated.

However, political and macroeconomic uncertainty weighed on business and household confidence.

In South Africa, system growth remained muted with lower-than-expected levels of fixed investment despite the economic reforms underway.

Inflation continued to moderate, and interest rates declined, even if the cutting cycle was shallower and later than initially predicted.

Despite the challenging operating environment, FirstRand said its operational and financial performance for the year will be more positive than its previous guidance in March 2025.

In that update, the group expects to deliver full-year earnings growth above long-term stated target range of nominal GDP plus 0% to 3%.

The group now expects to deliver full-year earnings growth of low double digits to mid-teens, above its long-term target and the latest inflation target of 2.8%.

The group’s ROE remains within the stated target range of 18% to 22%. The guidance, however, does not include any adjustment to the provision raised for the UK motor commission matter.

The group is still awaiting a judgment from the UK Supreme Court, which is anticipated by the end of July 2025. FirstRand has been embroiled in legal action over historic practices in its motor finance business.

The nitty-gritty

The group said its balance sheet growth remained healthy with absolute advances and deposits increasingly broadly aligned with its previous guidance.

It noted that its South African lending franchises also remained resilient. Corporate origination and overall production year-on-year also showed good momentum.

That said, the strategy to distribute lower margin assets means year-on-year absolute corporate advances growth will be lower.

Commercial advances continued to grow across the portfolio, given its targeted lending strategies, including the SME-focused lending, but were slower than in the first half of the financial year.

Growth was further supported by acquiring new customers. Home loan advance growth was relatively muted amid low household confidence,

On the other hand, vehicle and asset finance (VAF) continued to originate strongly, given Wesbank’s strong relationships with dealers and OEMs.

Advances in growth in the broader Africa portfolio are generally trending higher. It was better than expected in the UK operations, with production still anchored to property finance, where margins are resilient.

Despite the impact of the rate-cutting cycle on net endowment, growth in net interest income (NII) will also be higher than stated in the March guidance.

This was supported by a reduced opportunity cost emanating from the group’s ALM strategy. Net interest margins remain at broadly similar levels.

Overall, net interest income growth aligned with expectations, with fee and commission income growth similar to the first half. RMB’s knowledge-based fees delivered sustained growth off a high base.

Trading income remained weak, but was offset by healthy private equity realisations. Insurance income continued to show good momentum in operational terms, but was impacted by the sale of MotoVantage.

The group’s core credit performance is still trending with its guidance, and the overall credit loss ratio (CLR) remains at the bottom end of its through-the-cycle range.

Retail impairments picked up slightly ahead of expectations, mainly due to forward-looking macroeconomic volatility and front book strain from the strong retail VAF origination.

As expected, its commercial CRL is trending at higher levels, given the business strain associated with the strong SME-focused lending over the last two years.

Its corporate CLR remains as expected, and the UK’s credit performance is better than anticipated, despite the unwind of the UK notice of sums in arrears (NOSIA) provisions already in the base.

FirstRand’s financial statements for the year ended 30 June 2025, which will be released in September 2025, will include more precise figures.