Covid gobbles FirstRand Nam earnings

Jo-Maré Duddy – FirstRand Namibia estimates that it lost about N$185 million in earnings in the six months ended 31 December 2020 compared to its earnings run rate before the lockdown in March last year.

Releasing its latest unaudited interim results yesterday, the locally-listed group said its estimations of earnings lost include decreased net interest income (NII) of N$185 million for the half-year, decreased non-interest revenue (NIR) of N$8 million and higher impairments of N$156 million.

“The economic impact of Covid-19 continued to place acute pressure on the group’s performance for the six months ended December 2020,” FirstRand Namibia said.

The locally-listed group reported a profit of about N$564.9 million for the period under review, some N$58.8 million or 9.4% less than in the corresponding half-year in 2019.

The drop of 300 basis points in the repo and prime lending rates contributed to FirstRand Namibia’s interest and similar income plunging by 24% or some N$491 million from nearly N$2.04 billion in the 2019 half-year to nearly N$1.55 billion.

Commenting on the figures, Cirrus Securities pointed out that the drop was countered by a decrease of nearly 35% in interest expense, resulting in FirstRand Namibia’s NII only reducing by 14% to N$907.5 million.

IMPAIRMENTS

Cirrus said FirstRand Namibia emptier profit barrel was mainly the result of the drop in NII and a spike in impairment charges.

The group allowed for an impairment charge of about N$150.6 million in its latest half-year, N$32.6 million or 27.6% more than in the same six months in 2019.

The increased impairment charge results in a normalised credit loss ratio of 196 basis points (bps), which is “significantly higher than the credit loss ratio of 72 bps in the first half-year of 2020 and even higher than the 182 bps of 2020 financial year”.

According to FirstRand Namibia’s latest report, Stage 3 impairments, or advances that were credit impaired, at the end of last year totalled nearly N$132.3 million, up around 33% or N$32.6 million from 2019.

Stage 1 and 2 impairments remained flat at about N$18.3 million.

“The unprecedented economic stress created by the pandemic required the group to offer payment relief solutions for customers. The group provided debt relief on N$2.3 billion of performing (stage 1 and stage 2) advances, the Covid-19 relief advances representing 7.3% of total book as at 31 December 2020,” FirstRand Namibia said.

FIGURES

FirstRand Namibia’s total advances at amortised cost for the past half-year was about N$31.4 billion, compared to N$31.95 billion in the same six months in 2019. The group included a loss allowance of N$1.4 billion in its latest results, nearly N$587.4 million or 72% more compared to the same time in 2019. FirstRand Namibia’s total advances for the period under review is therefore around N$30.3 billion, down about 3.7% on an annual basis.

According to Cirrus, the annual decrease in advances highlights “a lack of (tangible) demand”. This was coupled with supply constraints, due to a risk reward mismatch in pricing brought about by decreased administered interest rates,” the analysts said.

Deposits increased 1.6% to N$36.5 billion. “In recent years, deposit growth has outpaced advances growth and thus balance sheets of Namibian banks are healthier now. This affords banks the opportunity to better manage their costs, as they are not forced to pay up for funding,” Cirrus said.

Non-interest revenue contributed 52.4% to total income, the highest contribution since the first half-year of 2018, according to Cirrus. “The non interest income growth of 3.4% to N$1.04 billion aided the overall group performance and provided a base for overall earnings.”

FirstRand Namibia said its transactional volumes trajectory has rebounded, on an aggregate basis, and are back to pre-Covid levels. Total financial transactions were up 6.3%, while banking app transactions spiked by 112%.

Cirrus said FirstRand Namibia’s operating expenses were well contained, decreasing 4.6% to N$1.01 billion. “Despite this, the group cost-to-income ratio deteriorated to 51.1% from 50.9%,” they pointed out.

The analysts said FirstRand Namibia remained well capitalised throughout the period, with levels above the minimum regulatory requirements. The capital adequacy ratio was 18.9% and common tier equity 1 (CET 1) capital was 10.5% at the end of last year.

FirstRand Namibia declared an interim cash dividend of 94c per share, 10c per share or 9.6% down from the corresponding dividend in 2019.

OUTLOOK

FirstRand Namibia said it entered the Covid-19 crisis in a strong liquidity position as it had increased liquid asset holdings to proactively manage its liquidity coverage ratio (LCR) requirements. “This, together with the group’s strong deposit growth, allowed Group Treasury to successfully navigate tightening liquidity conditions following the onset of the Covid-19 crisis,” it said.

It continued: “Trends post lockdown are improving as the economic recovery slowly emerges, however, activity levels remained muted on a relative basis and balance sheet growth was subdued.”

FirstRand Namibia said going into year 2021 “we do see more reason for optimism as the global rollout of several effective vaccines makes progress around the world, and our own government makes plans to receive and distribute these medicines”.

FirstRand Namibia is listed on the Local Index of the Namibian Stock Exchange (NSX). It closed Wednesday at N$23.07 per share. The share price has gained 0.13% since the end of last year.