FirstRand Limited’s results for the 12 months ended 30th June 2008 reflect the resilience of its diversified portfolio of banking and insurance businesses. It allowed the Group to post earnings of R10.4 billion which on a normalised basis were 8% lower than the exceptional performance of the year to 30 June 2007 in which they grew 32%.
Strong top-line growth in both net interest income and non interest income contributed to this performance and was achieved despite significant increases in bad debts at FNB and WesBank combined with losses incurred in the offshore equity trading division of Rand Merchant Bank.
Normalised net asset value increased 11% to R51.6 billion partly as a result of the R0.9 billion profit on VISA shares, but mainly due to the strong profitability of the Group. This also allowed the Group to maintain its 2007 dividend. The ROE of 22% was respectable given market conditions.
Commenting on the results, FirstRand CEO Paul Harris said:
“These results were achieved within an operating environment characterised by high inflation and high interest rates, which placed significant pressure on consumers and resulted in a dramatic increase in bad debts in the retail lending books of banks. The absolute level of our bad debts highlights the severity of the current cycle, but they are in line with expectations, are priced for and not out of line with the South African banking industry.
“The Group’s earnings were also impacted by losses of R1.4 billion in RMB’s Equities Trading division, however RMB’s diversified portfolio mitigated to some extent this under-performance, with the Investment Banking division, Private Equity division and FICC division showing excellent growth of 64% 76% and 37% respectively.
“WesBank however had a decrease of 38% in normalised earnings as a result of higher bad debts and the write off of operating assets in its Australian business which is in the process of being sold. WesBank has navigated several bad debt cycles in the past and has demonstrated that it is a profitable business through the cycle.
“FNB posted solid growth in earnings and despite a slow-down in the top line continued to extract efficiencies, taking a further 3% off its cost to income ratio.”
“Momentum Group posted growth in normalised earnings of 20%, an excellent performance given the tough conditions facing the insurance industry. It reflects the incredible resilience of its business model and the benefits of its conservative capital management strategy.”
Looking forward, given the on-going difficult credit environment, and the continued volatility in financial markets, the Group believes it is too difficult to predict the end of the current cycle and therefore it is not possible to provide reliable earnings guidance for the next financial year.
The Group however remains committed to providing real growth in earnings over the longer term.