FirstRand Nam in recovery mode

Jo-Maré Duddy – A massive drop of 57% in credit impairment charges boosted FirstRand Namibia’s profit for its 2021 book-year back above the N$1-billion level.

The locally-listed giant yesterday released its annual financial results on the Namibian Stock Exchange (NSX), showing a profit of N$1.032 billion for the year ended 30 June 2021 – an increase of about N$199 million or nearly 24% compared to the prior book-year.

In its 2020 financial year, FirstRand Namibia’s impairment of advances was N$560 million. In its latest set of 12-month results it is N$238 million.

“The slightly optimistic outlook on the macro environment and positive effect of the earlier rolled out Covid-19 vaccines contributed to lower portfolio impairment charge,” the group’s chief financial officer, Oscar Capelao, said in FirstRand Namibia’s latest integrated annual report.

The impairment charge represents 0.75% of gross advances compared to 1.79% in 2020.

According to Capelao: “The ratio of non-performing loans (NPLs) to gross advances as at period end was 0.80% up from the 4.4% in 2020 and in dollar terms deteriorated from N$1.369 billion to N$1.645 billion. This compares well to the industry NPLs ratio which stood at 6.5% for March 2021.”

He said the group remains prudently provided, with portfolio impairments as a percentage of the performing book at 200 basis points (bps), exceeding the annual credit charge.

LONG WAY FROM 2016

Despite the massive decrease in credit impairment, the charges were still significantly higher than the N$48 million of 2016, the first year of Namibia’s current recessionary cycle. The charges clearly reflect the impact of the recession on the consumer and businesses: in 2017 it rose to N$59 million, followed by N$128 million (2018), N$215 million (2019) and more than half a billion in 2020, when the Covid-19 pandemic hit the country.

The profit trend displays the same trend. Excluding 2020, FirstRand Namibia’s annual profit is still the lowest since the N$999 million of 2015 and some N$186 million short of the peak of N$1.218 billion recorded in 2016.

INCOME, ADVANCES

The group reported net interest income (NII) of nearly N$1.88 billion, down 7% year-on-year (y/y). FirstRand Namibia’s NII exceed N$2 billion in both 2010 and 2020.

Capelao said cumulative interest rate cuts of 300 bps during the year under review had a negative impact on endowment income, decreasing net interest margins. NII was down N$21 million on average in the last 12 months since the Bank of Namibia (BoN) started cutting its repo rate to historic lows in March 2020 to try and mitigate the impact of Covid-19 pandemic.

According to Capelao: “Comparing the NII run rate of pre-March 2020 lockdown period to post lockdown period, our estimate of earnings lost approximate N$248 million for the current financial year, as well as higher specific impairments of N$64 million.”

Loans and advances increased by a mere 0.7% y/y, also impacting NII. FirstRand Namibia’s total loan-book at the end of June was about N$30.2 billion.

“The annual growth in private sector credit extension (PSCE) declined relative to the same period of 2020 driven by lower demand and more cautious supply. The ratio of household debt to disposable income increased due to subdued growth in disposable income, relative to the growth in credit,” Capelao commented.

Non-interest revenue (NIR) rose by about 3% y/y to N$1.95 billion.

“During the first two months of the year and the last month, when lockdown was implemented with the resultant drop in activity levels, certain channel volumes declined markedly, however, app volumes remained resilient, with overall transactional volumes 28% higher than the prior year,” Capelao said.

According to him, the number of customers using the FNB app increased by 54%, with volumes increasing 107%.

Group operating costs decreased by 2% y/y to about N$2.1 billion, reflecting the close management of the group’s discretionary spend, he said.

OUTLOOK

FirstRand Namibia’s results for its past financial year reflect “the extremely difficult operating environment”, Capelao said.

As the closed off the financial year the third Covid-19 wave hit. “Uncertainties include a drop in employment, vaccines efficacy against new virus strains and permanent changes in consumer behaviour and the recovery of the directly impacted sectors,” he said.

FirstRand Namibia’s chief executive officer, Conrad Dempsey, in the annual integrated report said economies that were weak entering the crisis will most likely take longer to recover. “Consequently, Namibia’s recovery will be slow unless its underlying fundamental long-term structural weaknesses are resolved,” he said.

Dempsey continued: “For FirstRand Namibia, the economic impact of Covid-19 will continue to place acute pressure on the group’s performance for the rest of the 2021 calendar year.

“However, trends are improving post-lockdown even as economic recovery slowly emerges, and we remain hopeful that the remaining year will be better for Namibia and its people and the world at large. Our resilience this year puts us in a stronger position to accelerate our exponential help for customers in our transact, credit, insure and invest areas in the months ahead.”