Another profit dip for FirstRand Nambia

Jo-Maré Duddy – Challenging economic conditions saw FirstRand Namibia, previously FNB Namibia Holdings, having to do with a drop in profit for a second consecutive financial year.

Results released by the group show a profit of about N$1.06 billion for the year ended 30 June 2018, down N$52 million or 4.7% from its 2017 book-year. In 2017, FirstRand Namibia’s profit took a knock of N$105 million or 8.6% compared to 2016.

“The year under review saw Namibia work through four quarters of consecutive GDP contraction, the worst since 1983, directly contributing to the sharp increase in NPLs [non-performing loans] in the portfolio,” says group chief executive officer, Sarel van Zyl, in FirstRand Namibia’s latest Annual Integrated Report.

Oscar Capelao, the chief financial officer, in the report describes the year under review as a “very challenging economic period”.

The group’s total impairment charge increased by N$69 million or nearly 116.4% compared to 2017. The five-year review in the report indicates a sharp increase in impairment charges since 2014, when it was N$18 million.

For the past financial year, FirstRand Namibia’s total impairment charge represented 0.44% of gross advances. In 2017, it was 0.21%.

“Group credit loss rates increased as expected, impacted by a more challenging macroeconomic environment, but performance is acceptable and within risk appetite. Credit origination strategies are aligned to the group’s macroeconomic outlook,” Capelao says.

NPLs

The ratio of NPL’s to gross advances increased from 1.4% in 2017 to 1.7%. In Namibian dollar terms, this means an increase from N$339.1 million to N$481.5 million. According to Capeloa, mortgage NPLs increased by 43.8% to N$304.5 million.

“This increase is mainly attributable to specific impairments and was anticipated in the deteriorating economic climate. The group’s impairment levels remain well within acceptable levels through the cycle, and coverage ratios remained in line with industry.

“Portfolio impairments increased by N$2.5 million (2017: N$83 000), but overall provisioning levels for the group have remained conservative to maintain an adequate level of provisioning on the performing loan book,” he says.

Interest

FirstRand Namibia’s net interest income before impairment of advances grew by about 3% to N$1.82 billion. After impairment and fair value of credit of advances, it came in at N$1.692 billion, N$14 million or 0.75% less than in 2017.

“Cost of funding has over the last two years seen consecutive increases in the high teens, bringing an end to the low cost of funds of the past and putting pressure on margins,” Van Zyl says.

The group’s non-interest income increased by nearly N$242 million or 15.6% to nearly N$1.8 billion.

On a normalised basis – which includes the acquired Pointbreak companies and EBank for a full twelve months – non-interest revenue grew by 11.2%.

According to Capeloa, this reflects “strong fee and commission income growth of 12.0% within the banking group, which continued to benefit from volumes in digital and electronic channels, and solid growth in customer numbers”.

Van Zyl adds: “Our non-interest revenue on ATMs/ADTs have increased by 23%, while the volumes on FNB App, Speedpoints and mobile banking platforms increased by 81%, 15% and 16% respectively. This is in line with our strategy to drive down the cost of branch banking and provide more affordable and accessible cash out points in partnership with retailers and agencies, using our more than 4 000 reliable Point of Sale devices deployed throughout Namibia.”

FirstRand Namibia is listed on the Local Index of the Namibian Stock Exchange. With its total market capitalisation of more than N$11.9 billion, it is the biggest company on the index. The group closed at N$44.50 per share on Friday.