FirstRand CEO Mary Vilakazi has warned that fast escalating import tariffs being imposed by other countries, led by the US, could result in higher global inflation.
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FirstRand CEO Mary Vilakazi has warned that geopolitical tensions in the form of import tariff increases in many countries, led by the US, may lead to higher global inflation and prevent interest rates from being cut further in South Africa later this year.
Vilakazi was interviewed Thursday at the release of the financial services group’s financial results for the six months to December 31. Just this week the US imposed a 25% tariff on its imports from Mexico and Canada and it doubled tariffs on some Chinese goods to 20%. Vilakazi said higher tariffs have the impact of raising consumer prices, and may lead to higher global inflation this year, which might also impact prices in South Africa.
“We had penciled in two interest rate cuts this year, but the last one towards the end of the year seems more uncertain now given the global geopolitical tensions,” she said.
She said South Africa, with its economic structural reforms underway such as in the logistics, transport and energy sectors, and with inflation currently quite low, had an opportunity to grow its economy, but it could not look to its trading partners for growth, because those countries were facing economic headwinds.
South Africa had to rely on itself to drive economic growth, as even China's economy was growing as well as it had previously, she said.
FirstRand delivered good top line growth and cost management during the six months, in a challenging consumer environment both in South Africa and the UK, which resulted in a better performance than its management had expected.
The results for the group that trades through brands including FNB, Rand Merchant Bank (RMB), Wesbank, Ashburton Investments, and Ardmore in the UK, were also supported by retail credit outperforming, relative to initial expectations both in South Africa and the UK. An interim dividend of 219 cents per share was increased 10%, rising in line with earnings.
She said the improvement in impairments evident in the first half was continuing, even though the group expected that the full impact of interest rate cuts, lower inflation and two pot pension payouts, will only fully be felt in the second half.
A provision relating to the UK Financial Conduct Authority's (FCA) review of motor commissions raised at June 30, 2024, improving credit outcomes and good cost management meant the group now expected full-year earnings growth above its long-term target range, and second-half absolute earnings were expected to be marginally higher than the first half.
“FirstRand continues to deliver growth and superior returns for shareholders. This is demonstrated in the 10% growth in normalized earnings, the 12% increase in economic profits and an ROE of 20.8%,” Vilakazi said.
She said the results represented “very pleasing shareholder outcomes” given the challenging operating environment.
FirstRand was cautious in pursuing advances growth, given competitive actions in the market and the higher interest rates, and its management believes it is still capturing a higher share of quality risk business.
Advances growth in most retail advances portfolios however had remained muted given customer affordability pressures but, on a period-on-period basis, still delivered healthy increases, with retail advances up 4% at FNB and 6% at WesBank. A further improvement was anticipated in the second half.
Advances growth from FNB’s commercial segment of 12% and 9% at RMB reflected a focus on sectors showing above-cycle growth, and which were expected to perform well even in an inflationary and high interest rate environment.
FNB supported SME customers by increasing unsecured advances to this segment by 14% and “continues to be the largest lender to SMEs in South Africa.”
Growth in advances in the UK operations picked up by 4% in pound terms. The business focused on property and business finance where risk adjusted margins held up well.
Deposits and transactional balances increased strongly. FNB holds the largest retail and commercial deposits in the country and when including the broader Africa and corporate deposit growth, with some R1.3 trillion of deposits.
Total group non-interest revenue (NIR) increased 8%, underpinned by 8% growth from FNB driven by customer growth of 3%, and healthy growth in activity levels and transactional volumes across all channels.
FNB’s insurance activities grew strongly, with pre-tax profits up 17% - diversification in the insurance businesses has seen the credit life component reduce from almost 100% of the book to around 66%, she said.
RMB’s NIR increased 4%, a solid result given the high base created by significant private equity reallisation in the prior period that did not repeat. The 55% growth in knowledge-based fees had represented welcome growth in the generally muted merger and acquisitions market in South Africa.
Vilakazi said that the group expects a strong second half.
“We expect balance sheet growth to remain healthy, driven by similar advances and deposits growth compared to the first six months. However, NII growth is expected to be slightly weaker as the endowment impact from the current rate cutting cycle continues to fully materialize,” she said.
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