FNB CEO Jacques Celliers says that while the broader FirstRand group is in a “very good place from a franchise perspective” in that it’s been able to get to the “other side without major damage to our core client base”, there remains a need to “get the economy going again”.
The bank’s primary bank strategy, in place for many years, means it has an outsized share of the market when it comes to economically active customers. It also “banks all the industries in the commercial” segment, so has been able to “track any commercial activity that makes sense and looks viable”. With this data-driven approach, it therefore also has a good sense of which individuals were likely to be affected which means it has been able to provide the right assistance to the right retail customers.
In its retail lending book, R105 billion (or 24%) is described as “Covid-19 impacted”. Of that amount, it granted relief on a total of R67 billion in loans. R329 billion in retail loans are performing. The commercial book is more impacted, with 40% or R50 billion affected. Of that, it has granted relief on R30 billion in loans.
|Covid-19 impacted||R105 billion (24%)||R50 billion (40%)||R76 billion (21%)|
|– Relief granted||R67 billion||R30 billion||R56 billion|
|– No relief||R38 billion||R20 billion||R20 billion|
|Performing book||R329 billion (76%)||R76 billion (60%)||R280 billion (79%)|
Celliers says the banking group has been actively “looking for opportunities in our client bases”, which come as a result of moments of massive disruption.
Some of the bank’s customers found opportunity, even in sectors that had been truly devastated.
He offers examples of how some restaurants, manufacturers and bed and breakfasts somehow managed to trade through and “make another plan”.
This speaks to the quality of these businesses and these entrepreneurs.
In the commercial business, it has granted substantial relief in the automotive retail, impacted real estate, transport and aviation, and leisure and hotels sectors. The total relief granted to other impacted sectors is R16 billion, slightly higher than the R13 billion in relief granted to the specific sectors listed.
Transactional activity bounced back quickly in July and August (post FirstRand’s year-end), and is now above 90% of normal levels.
Celliers admits that some of this may have been pent-up demand. Gauteng is “not quite firing on all cylinders yet” and the Western Cape, given its reliance on the inbound tourism market, has among the weakest activity levels across the provinces.
Confident yet cautious
While confident, he says we simply “won’t see the festive season that we’ve seen in previous years”, with bonuses or 13th cheques highly unlikely. He adds that people and business are still “understandably cautious”.
The group expects the recovery to be slow, with real GDP forecast to contract by 8% this year. By 2023, the South African economy is likely to still be below 2019 levels.
How does this change?
Much rests on the government’s planned infrastructure development programme.
The group says a “real recovery” requires “urgent” implementation of structural reform initiatives identified by National Treasury, including:
- Ensuring stable and sufficient electricity supply (modernising network industries);
- Allocating 5G spectrum (modernising network industries); and
- Attracting highly skilled professionals to South Africa through relaxation of visa requirements (alleviating skills constraints).
It has “previously appealed to government to crowd-in the private sector [with] financial capacity and skills to enable delivery”.
It adds that Covid-19 initiatives such as the Solidarity Fund and FirstRand’s ‘Spire’ (SA Pandemic Intervention and Relief Effort) Fund “demonstrate how effectively South African business partnered with government to tackle social and economic challenges at scale”.
It says “implementation could be rapid, should be inexpensive and will boost business confidence and private sector investment”.
Responding to President Cyril Ramaphosa’s criticism on Wednesday night that banks had not lent enough under the R200 billion loan guarantee scheme and that thresholds and criteria possibly need to be adjusted downwards, Celliers says the banks did a “large amount of voluntary relief on our own”.
In contrast to immediate government support in other markets, there was no certainty that help from government would even come.
“By the time the guarantee scheme came in, we had dealt with lots of volume already,” says Celliers, adding that FNB had “done an incredible job” of providing relief to customers. And because the crisis is “not over yet” the loan guarantee scheme provides banks with an “additional lever that we can pull”.
He says the bank is grateful that the strategies that it has been working on for years, specifically in the digital space, have “landed almost perfectly for what we need right now”.
If anything, Covid-19 and the lockdown “expedited its strategy” where those customers who had been resisting it “all of a sudden had no choice” but to use electronic channels. It could deal with over 100 000 applications for relief via its in-app process. Celliers says this would simply not have been possible in the “normal way” of doing things, such as using email or call centres. Lockdown demanded an entirely different scale of operations.
In its credit life business, as one example, it went from 50 to 4 000 applications a day.
“How do you normally operationalise that without the digital platforms already in place?”
The banking group reported a 38% decline in normalise headline earnings for the year to June 30, helped by the fact that its first-half (to December) was not impacted.
Return on equity declined to 12.9% (from 22.8%), and in line with the guidance from the regulator, no final dividend was declared. Its credit loss ratio more than doubled to 1.91% (from 0.88%), with the bank taking a R18.449 billion impairment charge in the second half (up from R5.9 billion in the first six months of the year).
For now, the situation looks “very positive” says Celliers, in that the bank can see the “profile of income that’s coming back” across most of its clients. “The data shows that there is lots of sustainability in how we exit this.”
In the worst-affected sectors, such as hospitality and entertainment, he says the “dependency on relief needs to reduce over time”.
He hopes the job market will remain “fairly stable”.
The big question, however, is “what government is going to do with its wage bill”.