Prinesha Naidoo
3 minute read
7 Mar 2018
7:23 am

Banks can contribute to land expropriation debate: FirstRand

Prinesha Naidoo

Banking group shows resilience amid tough trading conditions.

A farm worker on a tractor works a field on a farm in the Oudtshoorn district of the Klein Karoo in the Western Cape province of South Africa. File image.

The banking sector can play a key role in contributing to the debate on the expropriation of land, says FirstRand.

Government’s decision to review the Constitution with a view to allow for the expropriation of land without compensation has sparked fears of a systemic risk for the banking sector.

The banking group’s outgoing chief executive is assured by President Cyril Ramaphosa’s stance that protecting the economy, jobs and food security would be considered and believes banks can play a key role in discussions related to the practical implications land expropriation.

“The moment there is risk introduced in the asset class as a security for banks, we run the risk of bank lending stopping. That is exactly the opposite of what, I believe, government is trying to achieve. I think that through a proper engagement between government, labour, business and civil society we can land this [issue] properly.

“Fundamentally South Africa needs to become a more inclusive economy, that is a given [and] land is part of that,” said Johan Burger.

Despite uncertainty related to land expropriation, the outlook for the South African economy remains positive due, in part, to Ramaphosa’s election as ANC leader in December 2017 and president of the republic last month.

According to the group, the market leading positions of its businesses ensure that it is well placed to benefit off the renewed optimism and growth. But it warns the country’s challenges are largely structural meaning and that macroeconomic conditions for the remainder of its financial year are likely to mimic that of its first half.

During the six months ended December 31 2017, the group showed resilience amid a low growth environment and on-going political uncertainty.

It reported a 7% increase in earnings to R12.46 billion, of which 58% is attributable to FNB.

The retail and commercial banking unit reported an 11% increase in pre-tax profit to R10.4 billion, largely driven by the performance of its South African operations. Its other African businesses were impacted by macroeconomic headwinds in some of its mature markets and continued investments in its start-up businesses in other markets, explained FNB chief executive Jacques Celliers.

RMB also posted an 11% increase in pre-tax profit to R4.5 billion, with profits from its rest of Africa portfolio up 23% to R839 million.

Wesbank saw pre-tax profit fall 2% to R2.71 billion as impairment in its vehicle and asset financing business rose from 1.42% to 1.80%. The division reported operational issues in the scoring of customers in the self-employed and small business segment, partly due to an under-prediction of defaults in data supplied by a credit bureau, said Burger. Wesbank has taken steps to address the issue but expects its impact to continue into the second half.

According to Renier de Bruyn, an investment analyst at Sanlam Private Wealth, there were no real surprises in the group’s results. “FirstRand’s earnings growth was marginally better than Barclays Africa and Nedbank. But importantly, [it] was driven by better revenue growth, while the other two were mainly supported by lower bad debts, which is a less sustainable source of growth.”

The group delivered a return on equity of 22.5% and upped its dividend per share by 9% to R1.30 per share.

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