Johannesburg – First National Bank’s (FNB) growth in earnings is attributed to the group’s investment in its digitisation strategy, among other things, said chief executive Jacques Celliers.
Celliers spoke to Fin24 following the release of FirstRand group’s interim results for the year ended December 31, 2016.
FNB, one of FirstRand’s franchises, reported a 3% growth in earnings to R6.4bn. The bank’s profit before tax was up to R9.4bn. The customer base managed to grow 6% despite a tough macro-economic environment. Further, the group reported a 12% growth in transactional volumes, with the adoption of its banking app at 80%.
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Net Interest Income increased 11%, which was driven by the growth in advances by 6% and deposits by 11%. Non-Interest Revenue growth increased 6%, mainly driven by the commercial and premium segment growth. Bad debts and non-performing loans (NPL) increased especially in the rest of Africa given the economic headwinds.
Speaking on the bank’s performance, Celliers explained that the bank’s digitisation strategy, which started 10 years ago as well as the existing value proposition had a strong bearing on the results.
“We are grateful that our investments have put us in a good place on our digitisation journey,” he said.
The bank’s digitisation strategy has helped boost sales and improved efficiencies to customers. “Digital has helped improve efficiencies so we are able to extract more value on the existing [client] base,” he explained.
Mobile network, app
Regarding the bank's mobile network launched last year in partnership with Cell C, Celliers said that the uptake has been "brilliant".
FNB had been selling telecommunications products for over a decade, said Celliers and that there has been exponential growth among its customer base. The bank has reached break-even on start-up costs with 500 000 registered sims.
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He added that the banking app will be expanding beyond transactional banking to include other financial activity around customers lives like property. "We are investing in the future of what the app must do."
The bank also focused on its investments in its premium offering and business offering, both of which have fed benefits to the latest results. This has given the bank an opportunity to focus on energies on developing its consumer range in the lower end of the market, he explained.
Celliers added that the tough environment in 2016 meant that the bank had no credit lever to offer.
“We could have had much better growth if we were prepared to keep the credit levers.” However this strategy of prudency seems to have paid off, Celliers said the bank is in a sound position to take on more opportunities this year, especially now that the drought is over.
Operations in Africa take a knock
Profits from the operations in the rest of Africa, howeverk dropped 29% from R771m to R547m. This was due to poor performance in Mozambique and Zambia.
FNB Namibia reported strong operational performance but profitability was impacted by the current investment cycle, the group said in its SENS.
“To start a bank in a country is not an easy task,” said Celliers. The bank has three categories in which it operated, mature countries in which it has had a presence for a long time, emerging countries and start-up countries, he explained.
“In a mature country there is sufficient scale. You’re dealing with modernisation, not scaling.”
These include Namibia, Botswana and South Africa where it has had a presence for over 175 years.
Entering a new market requires the bank to build its brand as well as customer relationships and relationships with regulators, he explained.
He added that in South Africa and other mature countries, there was the advantage of diversification by regions. If one region hits a slump, it could be compensated by a boost in another region explained Celliers. Start-up countries however do not have regional diversification.
Celliers added that FNB was invested in its African operations for the long run.
Celliers also said that the bank looks to continue growing its premium and business segments. As a corporate the bank will also play a part in helping South Africa get out of the “lull” in growth.
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