FirstRand Nam bears Covid brunt

Jo-Maré Duddy – Since 2016, the first year of economic contraction in the current cycle of recession, FirstRand Namibia’s impairment losses have skyrocketed by more than 1 000% from N$48 million to N$560 million in its past financial year.

An impairment loss is a decrease in net carrying value - the acquisition cost minus depreciation - of an asset that is greater than the future undisclosed cash flow of the same asset.

FirstRand Namibia’s non-performing loans (NPLs) at the end of June 2020 stood at N$1.369 billion, up N$524 million or 62% from its 2019 book-year.

The ratio of NPLs to gross advances ended the period at 4.4%, up from 2.7% in 2019. According to the chief financial officer of FirstRand Namibia, Oscar Capelao, the industry NPLs for March 2020 was 5.8%.

“Security held against NPLs stands at N$879 million, demonstrating our commitment to responsible lending,” Capelao said in FirstRand Namibia’s 2020 Annual Integrated Report.

Results released yesterday by the locally-listed giant on the Namibian Stock Exchange (NSX), show it is the first time since the start of the prolonged recession that FirstRand Namibia reports a net profit of below N$1 billion.

The group made a net profit of N$833 million for the year ended 30 June 2020 – N$253 million or 23% down from the nearly N$1.1 billion in its previous financial year.

Headline earnings for the book-year came in at N$867 million, down 19% from the N$1.071 billion in 2019. Headline earnings per share (HEPS) – a profit gauge – was 331.8c. This is 78.1c lower than the 2019 HEPS.

Under pressure

Commenting on the impairments figures in the Annual Integrated Report, Capelao, said the “forecast Covid-19 impact on the economy is expected to be worse than the 2008/09 financial crisis”.

“It’s now clear that conventional data sources and past rules of thumb relied upon by economists during past cycles have become less useful than normal – or even temporarily redundant – when trying to assess the scale of the Covid-19 economic slump and subsequent rebound,” Capelao said.

FirstRand Namibia’s total impairment charge increased year-on-year to N$559.7 million compared to N$214.8 million. The impairment charge is 1.79% of gross advances. In 2019, the figure was 0.72%.

Capelao said the increased pressure on customers due to Covid-19 also impacted the group’s impairments.

Forward-looking

The portfolio impairment charge increased from N$85.6 million to N$276 million for the year under review. Overlays increased on account of forward-looking assumptions used in the modelling of expected credit losses. Central overlays charge amounted to N$151 million.

Capelao said FirstRand Namibia remains prudently provided, with portfolio impairments as a percentage of the performing book at 212 basis points, exceeding the annual credit charge.

He pointed out that IFRS 9 requires the group to consider forward-looking information in the calculation of expected credit losses. Therefore FirstRand Namibia has estimated an increase in customer stress caused by the pandemic and resultant economic pressures anticipated over the next twelve to eighteen months, Capelao said.

“This stress has been incorporated into the calculation of the group’s expected credit losses and has resulted in a material increase in provisioning, even though the year to June 2020 only includes three months of the pandemic.”

FirstRand Namibia, with FNB Namibia as its flagship brand, is listed on the Local Index of the NSX.

At the end of last year, FirstRand Namibia had a market capitalisation by total shares in issue of N$8.94 billion, making it the second biggest company on the Local Index after Namibia Breweries. FirstRand Namibia closed 2019 at N$33.41 per share.

On Wednesday, FirstRand Namibia closed at N$23.02 per share. Its market capitalisation by total shares in issue was N$6.16 billion, down N$2.78 billion from the end of 2019 and the third biggest company on the Local Index.