LENDER FirstRand said yesterday it expected its annual earnings to increase by 35 percent, because the economy had rebounded faster than initially expected.
It current trends indicated that customers were using their discretionary savings as the economy had opened up. “Consumer spending is now back at pre-Covid levels,” FirstRand said.
FirstRand’s portfolio of leading financial services franchises includes Rand Merchant Bank, First National Bank and WesBank.
FirstRand’s headline earnings per share (Heps) of 308.9 cents, earnings per share (Eps) of 303.5c and normalised Eps of 307.8c for the year to June 30, 2020 would be exceeded by more than 35 percent in the year to June 30, 2021. FirstRand’s Heps, Eps and normalised Eps would be at least 417.0c, 409.7c and 415.5c, respectively, it said.
The financial services group told shareholders in March that the absolute level of earnings for the six months to December 2020 would likely not be repeated in the second half.
It warned investors in March, when it said its first-half performance had beaten its expectations, not to expect a similar level of absolute earnings in the final six months.
However, since then – with expectations of the elevated cost of credit in South Africa because of the lockdown restrictions in December and January and the third wave of Covid-19 in the UK resulting in higher arrears and non-performing loans – FirstRand said the group had seen the South African economy rebound much faster than initially expected. This, combined with ongoing strong collections, had resulted in significantly lower impairments than predicted.
Arrears had reduced, and although non-performing formation had continued, it was trending lower than expected. In the UK, the credit experience has also been better, supported by the extension of the government furlough scheme.
“Despite this improving picture, due to ongoing uncertainty, the group remains conservatively positioned with regards to its forward-looking provisions,” it said. “Given the level of improvement in the cost of credit, the group is now experiencing a stronger second half performance than expected.”
The lender said non-interest revenue was trending lower than in the first half, mainly because of the strong contribution from fee and commission income in December last year, compared with the lower volumes experienced in January and February this year following the second-wave lockdown. Fee and commission income improved in April and May.
In the second half of the financial year to the end of June 2020, trading income was strong given the prevailing volatility, and this was not repeated to the same extent in the second half of the financial year to the end of June 2021, although insurance revenue continued to be impacted by elevated claim levels.
FirstRand said overall cost growth would normalise higher than the 1 percent increase reported for the six months to the end of December last year.
The group said it had, however, benefited from a strong focus on cost management, and expected the increase for the year to be limited to low single digits.