Release Date: September 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Firstrand Ltd (FANDY, Financial) reported resilient earnings growth of 4% despite challenging macroeconomic conditions.
- The Group's Return on Equity (ROE) remains strong, positioned in the middle of its stated range of 18% to 22%.
- Firstrand Ltd (FANDY) achieved significant dividend growth of 8%, outpacing earnings growth.
- The Group's insurance business has been particularly successful, contributing 9% of total Non-Interest Revenue (NIR).
- The UK operations delivered healthy growth in earnings and an improved ROE, with a focus on improving returns from the motor business.
Negative Points
- The Group had to raise an accounting provision of ZAR3 billion related to the UK motor finance sector regulatory review.
- Credit impairments increased by 15%, driven predominantly by retail credit strain and a 15% increase in Non-Performing Loans (NPLs).
- The Group's overall effective tax rate reduced to 22.4%, impacting headline earnings growth.
- Retail credit loss ratio remains elevated, particularly due to systemic weakness in house prices and increased debt review inflows.
- The Group's Net Interest Income (NII) growth is expected to be weaker in the coming year, around mid-single digits, due to competitive pricing pressures and rate cuts.
Q & A Highlights
Highlights of Firstrand Ltd (FANDY) Earnings Call Transcript
Q: Could we get an update on the fintech strategy and capital allocation perspective given the muted advances growth in FY 25?
A: (Mary Vilakazi, CEO) The excess capital allowed us to declare dividends slightly ahead of earnings growth. We expect to deploy capital in South Africa and the region as opportunities arise. We remain on the lookout for opportunities to scale our businesses. Regarding the fintech strategy, we are working on launching new solutions and product offerings over the next six months, but more concrete plans will be shared in the future.
Q: Can you provide context around the impressive growth in FNB's retail bank customer numbers and the profile of these clients?
A: (Hetash Kellan, CEO - FNB) The 4% growth in net active customers spans across all segments, including personal and private segments. Growth is also seen in zero-fee accounts in both commercial and retail sectors. We are confident that the fee reductions will not see further significant cuts in the next 12 to 24 months.
Q: With the FCA provision in the base, your guidance for growth appears conservative. Can you comment on this?
A: (Mary Vilakazi, CEO) We expect softer NII growth around mid-single digits, a step down from the 10% NII growth seen previously. The big variable is credit performance, particularly in retail. We prefer to be cautious at this stage.
Q: How should we think about the potential for further cost savings in FNB over the next two years? Can cost growth remain below inflation?
A: (Markos Davias, CFO) Significant savings were achieved this year, and future cost growth will likely be just above inflation. We will continue to invest in platform modernization and new innovations, ensuring sustainable cost management.
Q: How confident are you that the motor finance provision will be tax deductible?
A: (Markos Davias, CFO) We have taken tax legal advice and believe that the provision will be tax deductible as we have not broken any laws or regulations. We recognize the income for earnings in the jurisdiction and pay taxes on it.
Q: Can you provide an update on inorganic growth opportunities across the continent, particularly in Kenya and Nigeria?
A: (Mary Vilakazi, CEO) We remain on the lookout for opportunities that unlock value for us. We have considered a few opportunities, including in Ghana, but were not successful. We will continue to evaluate potential opportunities in Kenya and Nigeria.
Q: Does management see CapEx digital offering as a threat to FNB's fee and commission income?
A: (Hetash Kellan, CEO - FNB) We see all competitors as a threat. However, we are confident in our banking app's detailed offerings and options. FNB recently won the best banking app from Global Finance, and we will continue to innovate and improve.
Q: Is it correct to assume that no further provisions will be needed for the UK motor remediation process?
A: (Markos Davias, CFO) The current provision is based on our best estimate. We do not expect further provisions for the nausea remediation process, which is nearing completion. However, the motor remediation process still has some uncertainty, and we will engage with the industry on this.
Q: Could you elaborate on your expected movements into FY25?
A: (Markos Davias, CFO) We expect NII growth to be softer, around mid-single digits, due to the strengthening rand and competitive pricing pressures. However, we anticipate some offsets from lower institutional funding costs.
Q: Are we entering a more favorable period for private equity realizations?
A: (Mary Vilakazi, CEO) The teams are focused on investing and realization activities. While there are many factors that influence exits, we aim to continue delivering strong ROE and remain optimistic about future opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
