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FirstRand says coronavirus has devastated economy

Profits drop 38%, mainly due to R15.2bn bad debt provision.
Image: Moneyweb

FirstRand, Africa’s largest bank by market value, reported a 38% drop in full-year profits on Thursday after it increased provisions to cover bad debts related to the coronavirus crisis by R15.2 billion.

The South African lender had already flagged that profits could fall by up to 45% due to the impact of the pandemic, which has also hit banks’ income from fees and lending growth.

Its headline earnings per share – the main profit measure in South Africa – stood at 308.9 cents in the year to June 30, compared to 497.2 cents reported a year earlier.

Chief executive Alan Pullinger said the bank’s results reflected a once-in-a-generation crisis, but that actions it had taken since would ensure its profitability recovered once the situation improved.

However, he added: “The lockdown devastated the economy, and it will be a long hard road back to recovery.”

FirstRand, which runs South Africa’s largest retail bank, said its lending-related provision included cover for possible future bad debts and actual losses, with non-performing loans increasing by 39% during the period.

It said while earnings would recover in the first half of its next financial year, these would still be below the levels seen prior to the pandemic.

Similarly, it said its earnings in the second half of next year would be unlikely to revert to June 2020 levels.

Like its peers, FirstRand did not declare a full-year dividend following guidance from the central bank for lenders to halt payouts to preserve capital.

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Sad but true reflection of the effects of the ‘economic virus’, and yes bad debt and the provisions there off will increase.

With reference to the article’s heading, the virus turned out to be a red herring. More deaths related to the flu and some other unnatural causes were prevented by the lock-downs than COVID-19 deaths. The actual issue was the lockdown (which followed an already compromised economy) which ‘devastated the economy’.

End of comments.

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