FirstRand shares drop as growth slumps

Johannesburg - FirstRand [JSE:FSR], Africa’s biggest bank by value, has cut back on extending credit because of slowing growth in its home market of South Africa and the rest of the continent.

“This year we’ve taken a further decision to make further cuts on credit granting, so asset growth will drop,” Johan Burger, chief executive officer of the Johannesburg-based lender, said today by phone. “The retail cycle has turned and the rest of Africa has also seen some uptick in non-performing loans.”

Growth in South Africa slumped to its lowest since a 2009 recession in the fourth quarter of last year when the country recorded annualised expansion of 0.6%. The decline in commodity prices also hurt economies like Nigeria and Zambia where FirstRand has operations. The lender will now be more cautious about extending its operations across the continent and has raised provisions for non-performing loans, Burger said.

“The uptick is nothing to be concerned about and there’s a muted impact on our income statement because we proactively raised provisions,” he said.

Amid the economic challenges, FirstRand’s fiscal first-half net income rose 1.7% to R10.5bn ($683m) in the six months ended December 31, from R10.3bn a year earlier, the company said in a statement on Tuesday.

Earnings per share excluding one-time items climbed 3% to R1.85 and the dividend increased to R1.08 a share from R0.93. Non-performing loans increased 8%.

FirstRand, with operations in nine African countries, runs a consumer bank, a vehicle-financing unit, an asset manager and an investment bank. It has steered away from acquiring assets, growing organically across the continent.

In the second half “advances growth is likely to decline, as further cuts are made given the deteriorating outlook, and corporate activity is unlikely to pick up significantly,” FirstRand said in the statement. “Retail and corporate bad debts are likely to increase further in the second half.”

FirstRand dropped as much as 5% and shares traded 2.21% lower on the JSE at R48.17 at noon.