FirstRand earnings climb 12.2%

FirstRand Namibia’s profit rose 12.2% to N$2.15 billion in the year to June, despite a decline in interest income, as lower funding costs and a sharp fall in credit losses boosted earnings.

Headline earnings per share increased 12.3% to 802.5 cents, while return on equity remained strong at 28.5%, above the group’s target range of 22% to 25%.

The bank said the performance was supported by growth across its businesses, stronger customer deposits and improved credit quality.

Lower funding costs

Interest income fell 2.8% to N$5.69 billion, partly because of changes in the repo rate and a narrower gap between the prime lending rate and the repo rate.

But interest expense fell 19.2% as the bank reduced its reliance on institutional funding and benefited from stronger customer deposits.

Deposits increased 14.3% to N$52.13 billion, outpacing the 9.2% growth in advances to N$42.81 billion.

The faster growth in deposits strengthened the bank’s funding position and reduced its reliance on more expensive institutional funding.

Net interest income consequently increased 9.4% to N$3.67 billion, while the net interest margin rose to 6.4% from 5.9%.

Non-interest revenue, including the insurance service result, increased 2.8%, supported by higher transaction volumes, fees and card commissions.

The SME Digital Hub also completed its first full year of operation.

Credit losses fall

FirstRand Namibia also benefited from a sharp improvement in credit losses.

Impairment losses fell 52.8% to N$249 million, driven by higher recoveries and a significant reduction in business-as-usual specific impairments.

The credit loss ratio fell to 0.6% from 1.3%, while non-performing loans (NPL) declined to 3.8% of advances from 5.2%.

The bank’s NPL ratio was below the industry average of 4.2% at the end of June.

The improvement in credit losses provided a significant boost to earnings, although the 0.6% credit loss ratio is close to the lower end of the group’s long-term expected range of 0.5% to 1%.

RMB leads lending growth

Advances increased 9.2% during the year, although growth varied across the group’s businesses.

RMB advances rose 35%, while WesBank advances increased 12%.

FNB advances grew 2.4%, reflecting capital repayments and muted growth in home loans.

Private-sector credit extension increased 4.5%, with corporate and household credit both growing at the same rate.

Investment securities increased 39.8%, driven by higher holdings of higher-yielding Treasury bills.

Costs rise

The stronger income performance came alongside higher costs.

Operating expenses increased 11.5% to N$3.12 billion, pushing the cost-to-income ratio to 48.5% from 46.2%.

Staff costs rose 10.8% to N$1.78 billion and accounted for 57% of operating expenses.

Technology expenditure reached N$1.01 billion, covering technology operations, development, payment capabilities, software licences and increased capacity.

Despite the increase in costs, FirstRand Namibia said its cost-to-income ratio remained the lowest in the market and within its target range.

The group’s total risk-based capital adequacy ratio strengthened to 21.7% from 20.3%.

Dividend increases

The stronger capital position allowed the bank to increase shareholder distributions.

The final ordinary dividend rose 57.2% to 446.57c per share.

Total ordinary dividends for the financial year increased 40.3% to 668.34c per share.