FirstRand Nam weathers the storm
Locally-listed FirstRand Namibia's latest annual results delivered good dividends to local and international shareholders for the year ended 30 June 2021 – and an increase of about N$199 million in profit, or nearly 24%, compared to the prior book-year. The group’s chief financial official, Oscar Capelao, elaborates on the financial...
B7: To which extent does FirstRand Namibia’s 2021 annual results reflect the impact of the ongoing recession and Covid-19?
OC: We implemented specific actions early on to weather the storm better in the next 18 to 24 months. For example, we entered the current financial year appropriately provided for. We did not release impairments; the charge was just lower this year. IFRS 9 is a forward-looking accounting standard, that has some effect but realistically some of the pain was felt in last year numbers already, that were down 18%.
The impact of the 300 basis-points rate cuts by the Bank of Namibia (BoN) fully reflect in our numbers - that’s at least N$248 million decline in our net interest income.
B7: What are the highlights in the results?
OC: Our digital banking platforms excelled during these testing times as volumes moved above the normal migration trend to these channels. We were able to contain the decline of pre-provision profit to minus 2.2%. Our home loans advances grew by 5.3%. The FNB App volumes were up 106%. We thankfully didn’t have any retrenchments either. We certainly had to contain staff costs though and to protect the income of the majority of the group, we committed to no increases for executives and below-inflation increases to managerial staff. The uptake of the contactless credit and debit cards also stood out as a highlight.
B7: To which extent has FirstRand Namibia provided relief to its clients who were impacted by Covid-19 during the period under review?
OC: FirstRand Namibia provided relief, by way of payment holidays, to well over N$2 billion worth of client exposures. Support regarding debt consolidation, working capital protection and Covid-19 relief reductions in fees and charges for stipulated periods occurred alongside the more than N$20 million spent on Covid-19 national health priorities and social responsibility in the same year.
B7: Banks have been hit by the historically low interest rates across the spectrum. To which extent has the Bank of Namibia’s monetary policy affected FirstRand Namibia and how does the group mitigate the impact?
OC: From a client perspective, debt is more affordable with interest rates at this level. As a bank, low interest rates help with the impairments line. We continue to actively manage our balance sheet. In a decreasing interest rate environment we experience negative endowment, but considering the challenging economic situation for regular Namibians, we have committed to maintaining our pricing discipline. Our pricing and rates remain competitive year on year, with many industry-leading products and services, especially digital and self-service options keeping the industry honest about real costs.
B7: Despite the low interest rate environment, private sector credit extension has remained muted. Why is that?
OC: We are all more cautious – the business community and individuals. Given the uncertainties of the economy, it is to be expected that on average the sentiment would be tilted towards less credit. Also playing a role was crowd psychology - when macros are reported as negative, investors and companies are less likely to take up more debt. In many instances, and considering low interest rates, this is possibly a good time to take up credit and prepare for future growth. The gross domestic product (GDP) forecast revision was more downwards after the economics forecast reassessment of the third wave impact, but the country certainly needs new investment and take up of opportunities and vision.
B7: Please elaborate on the quality of FirstRand Namibia’s loan book and its non-performing loans (NPLs).
OC: The book definitely performed better than we thought a year ago and the portfolio remains conservatively well provided for. At inception of credit, we do stress tests and the low interest environment is supporting the good quality of the book.
B7: What are the major challenges facing FirstRand Namibia in its current financial year?
OC: The operating environment remains challenging, including the risk of additional Covid-19 waves and the slow vaccination take-up.
Without herd immunity, lockdowns remain a threat to the economy, impacting credit originations, slowing recovery and crippling growth. Countries which have vaccinated have started opening up with economies beginning to act on new opportunities. Lack of vaccination take-up countrywide has a negative impact on Namibia from being one of those opportunities - either by way of tourism or investment into infrastructure, agriculture, mining and construction.
B7: What are the biggest growth opportunities for the group?
OC: As a market leader in digital banking, we will continue to see benefits off our market-leading digital platform, the FNBApp. RMB is also working on some great new engagement opportunities, and we look forward to reporting on it. We will also be growing our deposit base in the retail space as clients have become more savings and investment conscious.
Looking forward, FirstRand Namibia - through RMB, FNB, Ashburton and WesBank - is well positioned to deliver growth given our well-capitalised position and strong balance sheet. Building a globally competitive Namibia remains a defining goal for us.
OC: We implemented specific actions early on to weather the storm better in the next 18 to 24 months. For example, we entered the current financial year appropriately provided for. We did not release impairments; the charge was just lower this year. IFRS 9 is a forward-looking accounting standard, that has some effect but realistically some of the pain was felt in last year numbers already, that were down 18%.
The impact of the 300 basis-points rate cuts by the Bank of Namibia (BoN) fully reflect in our numbers - that’s at least N$248 million decline in our net interest income.
B7: What are the highlights in the results?
OC: Our digital banking platforms excelled during these testing times as volumes moved above the normal migration trend to these channels. We were able to contain the decline of pre-provision profit to minus 2.2%. Our home loans advances grew by 5.3%. The FNB App volumes were up 106%. We thankfully didn’t have any retrenchments either. We certainly had to contain staff costs though and to protect the income of the majority of the group, we committed to no increases for executives and below-inflation increases to managerial staff. The uptake of the contactless credit and debit cards also stood out as a highlight.
B7: To which extent has FirstRand Namibia provided relief to its clients who were impacted by Covid-19 during the period under review?
OC: FirstRand Namibia provided relief, by way of payment holidays, to well over N$2 billion worth of client exposures. Support regarding debt consolidation, working capital protection and Covid-19 relief reductions in fees and charges for stipulated periods occurred alongside the more than N$20 million spent on Covid-19 national health priorities and social responsibility in the same year.
B7: Banks have been hit by the historically low interest rates across the spectrum. To which extent has the Bank of Namibia’s monetary policy affected FirstRand Namibia and how does the group mitigate the impact?
OC: From a client perspective, debt is more affordable with interest rates at this level. As a bank, low interest rates help with the impairments line. We continue to actively manage our balance sheet. In a decreasing interest rate environment we experience negative endowment, but considering the challenging economic situation for regular Namibians, we have committed to maintaining our pricing discipline. Our pricing and rates remain competitive year on year, with many industry-leading products and services, especially digital and self-service options keeping the industry honest about real costs.
B7: Despite the low interest rate environment, private sector credit extension has remained muted. Why is that?
OC: We are all more cautious – the business community and individuals. Given the uncertainties of the economy, it is to be expected that on average the sentiment would be tilted towards less credit. Also playing a role was crowd psychology - when macros are reported as negative, investors and companies are less likely to take up more debt. In many instances, and considering low interest rates, this is possibly a good time to take up credit and prepare for future growth. The gross domestic product (GDP) forecast revision was more downwards after the economics forecast reassessment of the third wave impact, but the country certainly needs new investment and take up of opportunities and vision.
B7: Please elaborate on the quality of FirstRand Namibia’s loan book and its non-performing loans (NPLs).
OC: The book definitely performed better than we thought a year ago and the portfolio remains conservatively well provided for. At inception of credit, we do stress tests and the low interest environment is supporting the good quality of the book.
B7: What are the major challenges facing FirstRand Namibia in its current financial year?
OC: The operating environment remains challenging, including the risk of additional Covid-19 waves and the slow vaccination take-up.
Without herd immunity, lockdowns remain a threat to the economy, impacting credit originations, slowing recovery and crippling growth. Countries which have vaccinated have started opening up with economies beginning to act on new opportunities. Lack of vaccination take-up countrywide has a negative impact on Namibia from being one of those opportunities - either by way of tourism or investment into infrastructure, agriculture, mining and construction.
B7: What are the biggest growth opportunities for the group?
OC: As a market leader in digital banking, we will continue to see benefits off our market-leading digital platform, the FNBApp. RMB is also working on some great new engagement opportunities, and we look forward to reporting on it. We will also be growing our deposit base in the retail space as clients have become more savings and investment conscious.
Looking forward, FirstRand Namibia - through RMB, FNB, Ashburton and WesBank - is well positioned to deliver growth given our well-capitalised position and strong balance sheet. Building a globally competitive Namibia remains a defining goal for us.
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