FirstRand CEO Mary Vilakazi says the government is already seeing savings on its long-term borrowing costs as it benefits from improved post-election sentiment and its commitment to fiscal discipline, and the key now to turning around the public finances is higher growth.
Vilakazi, who took over as CEO of South Africa's largest banking group on April 1, said FirstRand had a positive view of South Africa's growth outlook and she was grateful to be taking over now, with the government of national unity in place.
She credited the previous government with starting economic reforms, albeit at a slow pace, and establishing a track record of executing these.
“Now we look at phase two of Operation Vulindlela and it starts feeling like a government that has confidence because now they’ve executed on certain things, and they can be more bold,” she said. Corporates had healthy balance sheets and would be able to support the government’s reform agenda with higher investment.
Vilakazi was speaking after the group reported a 4% increase in its headline earnings to R38bn for the year to end-June. The increase would have been 10% higher excluding a R3bn provision the group set aside against uncertainty over the outcome of UK regulators’ review of motor finance commissions. Earnings growth was dampened by the impact of higher-for-longer interest rates on bad debts, particularly in the retail loan book.
The group flagged South Africa's high public debt and the increasing cost of that debt as a risk to economic stability and growth at the time of its half-year results, warning time was starting to run out as global capital markets became tighter and more expensive for South Africa to access.
But the rally in bond yields and the rand over the past three months has started to change the trend. Vilakazi on Thursday cited the Treasury’s most recent weekly bond auction on September 10, when the government issued two new bonds, including the first longer-term bond in some time, and attracted strong demand.
So-called term premiums on long bonds have been reduced by 120 basis points (bps), with the R2035 bond (which matures in 2035) now reduced by almost 200 bps. Reducing borrowing costs for the government transmit through to lower borrowing costs across the economy.
If you get something that’s in good shape, I guess your responsibility is to make it a bit more shiny
— CEO Mary Vilakazi
This was Vilakazi’s first set of results as CEO, though as FirstRand’s COO since 2018 she has been “in the room” helping to run the group for some time and doesn’t feel the need to put her own stamp on it.
“If you get something that’s in good shape, I guess your responsibility is to make it a bit more shiny,” she said.
“FirstRand is a well-respected institution with a culture of doing the right thing that is strongly embedded in the group. My big responsibility is to make sure the portfolio continues to deliver and the business continues to grow,” she said.
FirstRand’s earnings growth compares with the 8% increase reported recently by Nedbank and 4% by Standard, and Absa’s 5% decline, though the three other “big four” peers have December rather than June year ends so were reporting only for the latest six-month period.
FirstRand’s operational performance came in ahead of its own expectations at the time of its half-year results.
Earnings growth in the second half came in at 14%, mainly as a result of stronger growth in non-interest revenue, whereas it had expected similar growth to the 6% in the first half.
At 21.3%, the group’s return on equity is much higher than its peers. It attributes this to its mix of businesses, as well as to the outcome of a series of “strategic calls”.
It took time to start lending again after the Covid-19 pandemic, choosing not to chase business into the rebound but to wait for a more sustained economic recovery. It has remained cautious, focusing on low- and medium-risk borrowers. Its credit loss ratio has risen but remains within its through-the-cycle target range.
While rivals Standard and Absa now derive a substantial proportion of their earnings from the rest of Africa, this is only about 13%-14% at FirstRand. It has nine subsidiaries in Africa and is keen to grow in countries such as Kenya.
Vilakazi said the group was always on the lookout for acquisitions and was ready to deploy capital where it could get value. But it did not have a target on how much of its earnings should come from broader Africa or the UK vs from South Africa.
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