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FNB takes R270 million knock on fees

But warns of a ‘material slowdown’ already underway in South Africa.
The banking landscape has intensified significantly and the impact is evident in FNB’s customer numbers: up 1% overall, but down 3% in the mass market segment. Image: Moneyweb

FirstRand, the country’s largest banking group by market capitalisation, continues to grow ahead of the market, despite macroeconomic environments in South Africa and the United Kingdom remaining “challenging”.

Overall, normalised headline earnings per share for the six months to end-December is up 5% (versus full-year growth of 1% at Standard Bank Group and a decline of 6.3% at Nedbank Group), with increases across its three main franchises: FNB, RMB and Wesbank.

Growth at FNB, which comprises nearly a third of the group’s earnings, was driven by its Commercial (business bank) and Rest of Africa units, where pre-tax profit was up by 9% and 7% respectively. The Retail unit grew profit by just 3%.

It conceded over R270 million in fees, primarily via targeted cuts in its July annual pricing review, but growth in non-interest revenue remained buoyant at 7%. These decreases were part of “ongoing and pre-emptive strategies” as “competition increases”.

Read: FNB cuts and simplifies (most) fees

FNB CEO Jacques Celliers says the simplification and adjustments over the past number of years has “played out quite well, especially in the bottom end of the market”.

“There are still one or two adjustments to do, but we believe we have a very competitive pricing proposition.”

The banking landscape has intensified significantly in the past 18 months, with the entry of TymeBank, African Bank’s shift into transactional banking, and the launch of Discovery Bank last year. Bank Zero is expected to enter the market this year.

Read: Banks freeze, cut entry-level fees

The impact of this is evident in FNB’s customer numbers. While total customers are up 1%, those in the mass market (its Consumer segment) are down by 3%. Some of these have shifted up into the Premium segment, with half of the 15% growth of this base attributable to upward migration.

This is normal behaviour, contends Celliers: “New-to-bank customers typically opt for the most basic offering to test us out.”

Its entire eBucks rewards programme is premised on driving behaviour change as customers use multiple products, and it is this that helps drive this strong move upward.

Advances growth (year-on-year)

Premium

Consumer

Residential mortgages

+7%

+3%

Card

+28%

-5%

Personal loans

+30%

+7%

Retail other

+9%

-3%

The bank has in recent years chosen not to be aggressive on credit at all in the lower end of the market. “Arguably, this leaves the bank with a bit of exposure [to the competitive landscape] at the bottom end of the market,” says Celliers.

Across the rolling six months to the end of 2019, personal loans advances were flat in the consumer segment. In the premium segment, advances growth was 6%. However, this has decelerated sharply from levels of between 22% and 33% over the prior three half-year periods.

The bank says the macroeconomic environment deteriorated more rapidly than anticipated, particularly in late 2019. The bank had to seemingly play catch up to this rapid change, with the result being a “marginally weaker” credit performance than expected.

Credit loss ratio

December 2018

December 2019

FNB Retail

1.73

2.11

• Residential mortgages

0.09

0.22

• Card

2.93

4.25

• Personal loans*

7.74

8.29

• Retail other

8.31

8.12

FNB Commercial

0.78

1.11

FNB (including Rest of Africa)

1.50

1.82

Wesbank

1.25

1.27

RMB

0.14

0.07

Aldermore

0.23

0.46

FirstRand Group

0.86

0.95

Credit loss ratio, excluding Aldemore

0.96

1.05

* Including slightly poorer quality DirectAxis book, now part of FNB (previously Wesbank).

Overall balance sheet provisions increased by 7%. This translated into a R910 million increase in the group’s credit charge. Card impairments increased by R270 million on the back of an increase in advances, however “strong book growth from new-to-bank and new-to-product origination strategies in the year to June 2019” resulted in “specific origination issues”. Non-performing loans caused by this will continue to remain elevated for the rest of the year. The bank sees “pressures in collections” on personal loans, resulting in an additional R300 million provision.

Group advances for the six months were up 4%, while deposits grew by 7%. (Normalised) return on equity of 21.2% is lower than the 22.3% achieved a year ago.

The group says it expects the macro picture to “continue to deteriorate, probably at a faster rate than the first half”. The global Covid-19 outbreak will continue to disrupt economic activity and “weaker wage growth” in the local context will translate into “weaker consumer spending”. FirstRand says it “has already experienced a material slowdown in its domestic business since the beginning of 2020”. It adds it will not achieve its stated target of real growth (GDP+CPI) in earnings for the full year, but earnings “are expected to reflect growth”.

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R270 Million ??? No surprise … A matter of time before(…. more ) people realise that paying for a bank account over R350 is a waste of money.

A matter of time before people realise that the fees at this bank are the highest in the country …

A matter of time before the economic situation brings about a reality check for many people….
Stop being a sucker!

This bank sucks cash! Losing their value proposition

Banks like FNB should be worried about the future – very worried as all of this happened before. Bank Official CV could soon be flooding the market as costs rise.

‘’The Wall Street October Massacre’’ (Black Monday crash on October 19, 1987, happened after the Fed increased the ‘’ discount rate’’ from 5.5 percent to 6 percent on September 4, 1987. Wall Street had its sharpest rise. The pressure (due to a falling US Dollar and weak economy). The Fed rose the rate to try and subdue inflationary pressures and they were trying to slow the economy by making money more expensive.
The market slump in 1970 had been proportionally twice as large, and the Great Depression had wiped out fully 80 percent of the markets value.
I remember the utter chaos at DNC London where I was trading Dollar Mark – Wall Street crashed 508 points – a 22.5 percent drop, the biggest one day drop in history.
The Fed in my view eventually warded off a financial paralysis – a chaotic state in which Banks and businesses stop making the payments they owe each other and the economy grinds to a halt.
We came through all of that eventually, despite the markets gyrating wildly for a very long time – but the most important factor then, and in today’s crash is, that the markets ‘’should remain open’’- despite their losses the investors know they can get our’’.
Today’s situation after the crash is completely different after years of low-interest rates, low inflation, low growth, stronger US Dollar and massive quantitative measures to stimulate world economies…
The virus methinks just made us realize that, although we have been enthralled by the notion that it is possible to peer into the future, we only survived due to our ability and c capacity (being inbred) to weigh probabilities, from the mundane to matters of life and death.

I think it is about time that a Moneyweb posting should have – they nice to have the facility to amend postings like above etc!

End of comments.

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