FirstRand (FSR) H2 2024 earnings summary

Executive summary

• Delivered resilient financial results with headline earnings up 4% to ZAR 38 billion, supported by strong operational performance and robust cost management despite challenging macroeconomic conditions and a significant UK motor finance provision.

• Raised a ZAR 3 billion (R3.3bn pre-tax) provision for the UK motor finance regulatory review, impacting reported earnings but not underlying operational performance.

• Normalized earnings growth, excluding the UK provision, was 10% year-over-year, reflecting strong operational performance.

• Maintained strong capital position, enabling an 8% increase in dividends, with a payout ratio of 61%.

• Strategic focus on deposit franchise, diversified non-interest revenue, and disciplined risk management underpinned sustainable returns.

Financial highlights

• Net interest income (NII) grew 10%, supported by deposit growth and capital endowment, partially offset by ALM strategy impacts.

• Non-interest revenue (NIR) increased 6%, with fee and commission income up 5% and trading income up 9%.

• Operating expenses rose 11%, including a 5% increase from the UK motor provision.

• Credit impairments increased 15%, mainly due to retail credit strain and higher NPLs; credit loss ratio rose to 0.81%.

• Core lending advances grew 6% to R1,598bn; deposits up 4% to R2,003bn.

Outlook and guidance

• Macroeconomic environment expected to remain challenging, with gradual rate cuts anticipated in key markets and muted retail advances growth.

• Advances growth to be marginally higher, led by commercial and corporate segments, but overall lending NII growth will be weaker due to lower margins and rate cuts.

• NIR expected to strengthen, with fee income rebounding and potential private equity realizations in the second half.

• Credit losses to trend up slightly but remain below the midpoint of the through-the-cycle range; cost-to-income ratio expected to improve.

• Earnings and ROE expected at the upper end of target ranges.