NOMPU SIZIBA: FNB came out today [Tuesday] with interim results for the six months ended December 2018. The bank reported normalised earnings up 13% at R8.7 billion. Despite a difficult economic terrain, the company said it saw positive customer growth, an increase in transactional volumes and higher levels of advances and deposits. FNB’s return on equity improved to 42.2%, compared to 38.6% in the year prior.
To take us through the numbers and more, I’m joined on the line by Jacques Cilliers, CEO at FNB. Jacques, you are out with a strong set of numbers for the period. Just take us through what’s been happening on the advances of loans and the deposits front.
JACQUES CILLIERS: You are right. We are on the front foot in a difficult climate. We are very happy with our results for the six months, although there are lots of challenges in the local market and the economy. But I think our strategies are slowly paying off, specifically referencing the loans growth. As you know, our strategies are into our bank relationships primarily, and so this path saw a continuation of that strategy – and very pleasingly. We saw a nice growth in both origination and servicing of our loan relationships with our existing clients.
NOMPU SIZIBA: So, during the second half of the year South Africa came out of the recession, but it’s well understood that the consumer remains under a fair amount of pressure. What did you see in terms of credit impairments? I see that your non-performing loans rose as a percentage of the advances.
JACQUES CILLIERS: This was a difficult period in which to compare numbers, given that we’ve just implemented the IFRS [International Financial Reporting Standards] accounting practice. We changed from the old accounting practice. So there are a lot of differences. If you reference the detail in the results presentation, there is more to unpack.
On CG [credit growth] there have been no increases outside of the norm for us, so we are comfortable with our origination strategies and the quality of the growth remains very good. But you are right, the consumer is under pressure. Our benefit is that we are able, through our origination practices and with our innovative digital executions, to do a lot of very specific target origination into our clients. So this is not a pray-and-spray-and-anyone-applies. We really deliberately go and fetch the volume from customers who are creditworthy, and we specifically work hard on using the credit experiences to entrench the banking rush. So we are very comfortable with the growth.
NOMPU SIZIBA: Speaking about your digital offering, how is that going in terms of gaining further traction? And does it mean that you are providing better value for money? Are your prices better as a result of being more digital?
JACQUES CILLIERS: Yes, you’ll know that for the last two decades at least we’ve been growing a very deliberate digital strategy around our customer bases, and this has now turned into what we refer to as the next phase of the platform phase, where you must think of us a lot like the Uber and Amazons rather than the traditional worlds, where people experienced a lot of faxing and email and physical paper-based activity. When last did you email Google a question, or when last have you tried to contact an Uber driver through an email? It’s a platform-based world, where our customers and ourselves interact with each other on our platform, and it makes it possible for us to be very specific and targeted around building data of our customers on a conditional basis – and you need to deliver growth and distribution very efficiently.
As an example, the loans that we have seen virtually are on a nice growth, and loans has been an element that’s been added to the already mature credit card capabilities inside our platform. So those things make it very easy for customers to interact with us. We believe our hearts and minds are around clients. We help them to manage their financial services and the solutions we give are very, very important for us in the future. Last year some of you might know that we took clients in our app about our ability to help people through month-end expenses. We can see through your data how much money you need to get through month-end expenses and, if you are going to be short we start advising you and giving you solutions for that. So it’s helping people manage money. Almost see it like a GPS on you back. It’s how we help you navigate the roadblocks and the adjustments and the events that happen with you. We think that with the tools we have we can really take our data and technology and turn them in an exponential algorithm execution. We are having fun.
NOMPU SIZIBA: Based on what you say, does this mean FNB is ready for some of the new competition that’s coming on the scene?
JACQUES CILLIERS: Yes, we trade in a very distinct environment. The macros are hard, the competitors are responsive. There is not a lot of place to hide. But I think we are blessed with a great customer base. They put us to the test, they push us hard and we try and deliver. We are also blessed with a very good team of people who are responsive and our employees try hard to made sure we stay ahead. And our strategy has been consistent. So as for our competitors, big or small, we are responsive and we look out to compete.
NOMPU SIZIBA: I see there’s a move on your part to streamline your physical assets to achieve more efficiencies. Practically, what does this mean? Are you shutting down a number of branches?
JACQUES CILLIERS: It’s an exciting evolution. For years now we’ve been taking sort of non-modernised basic processes out of our physical distribution bonds, and we even named our physical environments to points of presences, away from the old traditional branch descriptor. These points of presence are going to be vital for our future in much the same way that even Apple has an Apple store. When you go into those stores, you’d work on modern platforms, and in our environments they will be smaller, they will be more nimble; we are more focused on sales and service and interactions around especially new relationships. Today even 80 and 90% of our sales happen in personal interactions, new relationships.
You’ll know that yourself. We can all do lots of things ourselves in a year, but every now and again we need some help. Our environments are set up for that help. People who are nervous of technology can go into our environments and work on our safe infrastructure. People who need a bit of help to be shown how to do things once or twice or three times will go into our environments. We are creating very accommodating and helpful environments – as many as we can. But rather than the days of the big, old, heavy branch, like large 30-metre environments – think of us more like a convenience store. Look for environments closer to the boutique spot for different segments and the more relevant retail environments where the footfall goes and we can be nimble.
NOMPU SIZIBA: Jacques, as you know, serious claims have been made against FNB that date back to the late 1990s about the banks charging exorbitant interest rates on low-cost housing, particularly for its black customers. I know there is some action being taken at the equality court, but how seriously is FNB taking these allegations, and has work been done going back to research what really happened, to see the legitimacy of these claims?
NOMPU SIZIBA: Thank you for bringing it up. The first point is that there is no allegation against FNB. It was the old Saambou business that we inherited as a consequence of its going into curatorship. Since we took it over there has been a process of, I guess, remedying some of the practices that got them into trouble. One of those was some interest calculations that in there, which we knew about as we inherited the business. It took us a few years to remedy that. The allegations on race have been found in a number of court interactions to be totally false. There is no substance to the allegations, and they’ve been discredited – not only as to the individuals who keep on bringing the claims up, but as to the content.
We expect the additional things are now going to go to the equality court, but we stress that’s it’s an old Saambou matter. It has nothing to do with FNB. It’s important for us to mention that we would never insult the South African population or our customers or our employees with any form of discriminatory activity. It’s just unfortunate it’s been given so much air time on something that has been tested in court and found to be discredited.
NOMPU SIZIBA: Our thanks to Jacques Cilliers from FNB.