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FNB’s Africa operations weigh down profits

Johannesburg – FNB’s results were mainly driven by the performance of its domestic operations, as operations in the rest of Africa saw profit before tax decline by 32%.

According to the financial results for the year ended June 30, released on Thursday, FNB South Africa accounts for 95% or R17.9bn of total FNB profits before tax. Rest of Africa profit declined 32% to R880m.

In a statement chief executive Jacques Celliers said that the bank remains “deeply committed” to expansion in Africa and will incur ongoing investment costs in its operations in the continent.

Overall FNB grew profits to 5%, with bottomline at R13.3bn, up from R12.7bn reported in 2016. Return on equity was reported at 37.4%, down from 38.4% reported in 2016. FNB grew its Premium segment by 22% and its Business segment by 15%, however its Consumer segment declined 6%.

FNB accounted for R12.9bn or 53% of the FirstRand group’s normalised earnings, up 5% from the 2016 contribution of R12.2bn.

Growth in non-interest revenue (6%) was achieved despite FNB simplifying its product offering which saw customers moving to lower revenue-generating products. This move saw non-interest revenue impacted negatively by R540m. FNB believes this improved customer value proposition will lead to sustainable growth in the consumer segment going forward. Customer numbers increased 4% from 7.48 million in June 2016 to 7.8 million in June 2017.

FNB also saw growth in high quality net interest income (9%), driven by growth in advances by 4% and deposits by 12%.

Consumers also took on more mortgages (11%), however unsecured lending, which includes card, personal loans among others, declined 13% for this segment. This is mainly due to a more “conservative” risk appetite by consumers.

In the Premium segment however, mortgages only grew 2%, and unsecured lending grew 36%.

FNB’s overall bad debts and non-performing loans (NPL) increased 11% year-on-year, with a flatter trajectory in its retail business and an uptick in its commercial book. NPL in the rest of Africa increased sharply by 35%.

NPLs in domestic unsecured lending books show strong advances growth especially in the Premium segment. “This reflects the quality of new business written, appropriate pricing strategies and the positive effect of cutbacks in higher risk origination buckets,” the report read.

FNB contained cost growth at 6%, mainly due to investment in diversification strategies. Combining rest of Africa expansion cost increased came to 7%.

Africa operations

FNB Africa’s operations include mature businesses with “significant scale” and market share, in Namibia and Botswana and newly established and start-up businesses in Mozambique, Zambia, Tanzania and Ghana, according to the report.

“Across the board in the year under review, these businesses operated in markets facing economic headwinds and emerging regulatory challenges, and the portfolio delivered a mixed performance,” the report read.

New businesses suffered mainly due to a lack of scale and book diversification, and the macro-economy impacting credit losses.

The bank’s insurance business has gained traction with 3.2 million lives covered, the bank is optimistic it will contribute positively to the bank’s future performance.

Digital efficiencies

In terms of its operations at branches, efficiencies driven by digital and electronic banking has seen transaction minutes at branches falling 20%.

The uptake of the FNB Connect app has "exceeded" expectations. Previously in March, Celliers told Fin24 that the bank was looking at expanding the app’s offerings beyond transactional banking.

So far FNB Connect has acquired almost 10% of the existing customer base who meet product qualification criteria. The number of customers using the app increased from 1.4 million in June 2016 to over 1.8 million in June 2017. The volume of financial transactions has significantly increased by 68% from 59 million previously to under 100 million by June 2017. 

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