Reg Rumney
First National BANK (FNB) announced bottom-line=20 earnings up almost 23 percent this week at R920- million for the year to end-September.
The bank saw strong growth in advances and in non- interest revenues. Those advances were driven=20 mainly by consumer demand.
Margins were squeezed, as interest expenditure rose=20 40 percent while interest income rose 31 percent,=20 so that net interest income rose 14 percent to=20 R2,977-billion.
The bank’s margins will be further squeezed by=20 another interest rate hike _ which the bank=20 forecasts for the coming year, says general manager=20 Peter Thompson.=20
“We have quite a big fixed-rate portfolio compared=20 to the other banks, so when interest rates go up we=20 get squeezed more than they do, all other things=20 being equal.” He adds that FNB benefits when rates=20 come off.
“We believe there will be another percentage point=20 rate increase, but that we are at or near the top.=20 So we are well-positioned for a drop in rates,=20 which must certainly be the case over the next=20 three years.”
Of FNB’s advances, mortgage bonds represents around=20 R14-billion, or roughly 20 percent.
Thompson sees this growing as a percentage of=20 advances, particularly as low-cost housing gets off=20 the ground, though this is likely to happen in a=20 big way only in 1997.=20
Each of the five major groups will be allocated an=20 equal chunk of the new mortgage business that=20 arises from the housing drive.
“So we will get 20 percent of the new market when=20 we don’t have 20 percent of the current market.”
The scheme will kick off in April next year, and=20 Thompson expects it will start slowly, but there=20 will be a spinoff straight away in higher sales of=20 durables like brown and white goods _ TVs, hi-fis,=20 fridges and furniture.
Thompson expects this will benefit FNB’s new=20 furniture finance business, FirstPref Finance.
Mortgages will increase as a percentage of advances=20 also because FNB’s overdraft business is not=20 growing at the same rate.
“We are mainly niched into corporates and the=20 corporates are cash-flush. We’re not as consumer- niched as some of the other banks in overdrafts.”
Thompson sees foreign competition but at the level=20 of the large corporates where margins are already=20 paper thin. So the effect on profitability would=20 not be great if FNB did lose the business.
“Banking relationships will not change because=20 foreign competitors will not have the=20 infrastructure to service their checking=20 requirements, salaries etc.”
Smart cards, which FNB has launched in a big way=20 before the other groups, will be a big growth area=20 in the future The main benefit is educational, he=20 says. “We will bank a lot of the mass market via=20 the smart card.”
Thompson considers FNB best-positioned of all the=20 banks in the emerging personal market, calling it a=20 “nursery for future customers”.