FirstRand full-year profit rises

South African bank FirstRand posted a 34% rise in full-year profit, helped by a recovery in bad debts and investment banking, and said it could consider a tie-up with an international bank.

“If it made sense, we would,” chief executive Sizwe Nxasana told Reuters, when asked if FirstRand would consider a strategic alliance with an overseas bank to fend off tough competition, adding it was not looking for such opportunities now.

South Africa’s second-largest lender is likely to become the only one of country’s top four banks without a major foreign shareholder, a disadvantage as it focuses on cross-border deals.

HSBC is bidding for Nedbank, while Standard Bank is 20% owned by Chinese group ICBC, and Absa is majority-controlled by British bank Barclays.

“Clearly, if HSBC is successful in their transaction with Nedbank, they will create a formidable competitor,” Nxasana said.

While FirstRand has taken steps to streamline its ownership structure and sell off insurance units, it still remains stymied by chronic weakness in Africa’s largest economy.

FirstRand may struggle if domestic competitors are all backed by big international lenders, Afrifocus Securities analyst Johann Scholtz said.

“It would leave them at a competitive disadvantage,” he said. “With the restructuring of its ownership structure … it is almost like FirstRand is getting dressed up for a potential suitor.”

Asia deals
FirstRand has said it wanted to win more corporate and project finance deals from Asia, particularly by focusing on India — but South African banks have yet to see many blockbuster Asian deals.

FirstRand already has an agreement to work with China Construction Bank, although it is unclear whether that was much of a money-spinner.

Standard Bank’s chief executive told Reuters last week he was disappointed so far with revenue from that bank’s tie-up with ICBC.

South African banks have yet to post a convincing recovery after being hit by a surge in bad debt last year. While Africa’s largest economy exited recession last year, unemployment and household debts remain high, crimping demand for credit.

The central bank has responded by cutting rates by 600 basis points, or six percentage points, since 2008, including a 50-basis-points cut last week.

FirstRand is spinning off its insurance business, Momentum, through a merger with smaller rival Metropolitan. It also bought investment firm Barnard Jacobs Mellet to improve its stockbroking offering to rich clients.

Its headline earnings per share rose a third to 178,3 cents in the year to end-June. The company had said in June it expected full-year results to be 27% to 37% higher.

Headline EPS is the main gauge of earnings in South Africa and excludes certain one-time items.

Net interest income, the measure of a bank’s earnings from lending, totalled R16,35-billion before bad debts, compared with a restated R17,3-billion a year earlier.

Bad debts dropped 29%, while non-interest income, a measure of earnings from fees and commissions, rose nearly a third, helped by a rebound in investment banking. — Reuters

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