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- FirstRand expects the South African economy to shrink this year, as well as a good chance of more rate hikes.
- But it has kept its earnings expectations for its year to end-June unchanged.
- Normalised return on equity should remain at the upper end of 18% to 22%.
- For more financial news, go to the News24 Business front page.
While FirstRand expects the South African economy to shrink this year along with a good chance of more rate hikes, it still expects strong earnings growth.
In a trading update on Wednesday, the group said the business should deliver underlying earnings growth in the second half similar to that produced in the first half.
In its first half, the group grew normalised earnings by 15% to R18 billion. The bank expects its normalised return on equity (ROE) to remain at the upper end of 18% to 22%.
The group credited its own financial discipline as well as "good" customer growth for the performance.
FirstRand said its customer-facing businesses are resilient and have attracted more customer deposits. RMB grew deposits by an average of 15% in the first half of FirstRand's financial year, and FNB's increased by 11% to R810.9 billion.
FirstRand's lending businesses became more conservative in their lending approach during the pandemic up to early 2022. The group's CEO, Alan Pullinger, also attributed FirstRand's special dividend at the end of its 2022 financial year to the decision to tighten lending appetite during that period, even warning that other banks grew their share in "risky income".
But FirstRand said on Wednesday the conservative origination approach in the SA businesses during 2021 and early 2022, targeting low- and medium-risk customer cohorts, did weigh on net interest income growth. However, during the current year, the mix change in origination, combined with the endowment uplift, resulted in improved margins.
The group reported growth in advances, which in SA came from its retail vehicle asset finance (VAF) business as well as from demand from commercial and large corporate clients. It said the private sector investment cycle continues in certain targeted sectors. The group said the growth in new loans was trending as expected in the other retail portfolios, like home loans, credit cards and personal loans.
"The combination of higher rates and inflation has caused affordability pressures in certain consumer segments, which dampened demand. In the UK operations, as guided in March, the second half momentum in advances growth has slowed in both residential mortgages and retail VAF," it said.
In South Africa, the group expects that the economy will contract by 0.1% this year – from its previous forecast of 1.2% growth.
Load shedding, sticky inflation, as well as higher than expected interest rates have hit domestic economic activity, the group said, adding there "remains a strong likelihood of further rate hikes."
"Markets continue to react negatively to the government's stance on the Russia/Ukraine conflict, which has added to SA's country risk premium. Bond yields have increased and the rand remains vulnerable."
FirstRand's shares lost 1% on Wednesday, but are still up more than 9% in the year to date.
