The greatest health threat of a generation that has impacted every single economy in the world, the global Covid-19 pandemic, was the main reason that FirstRand Namibia’s profit before tax decreased by almost a quarter (23.7%), from N$1.58 billion in 2019 to N$1.21 billion this year. This is according to the banking group’s latest financial results released on Thursday, for the year ended 30 June 2020.
However, despite the most challenging environment seen in decades, FirstRand Namibia’s portfolio of businesses still produced satisfactory growth and delivered earnings above cost of capital.
“FirstRand Namibia entered this crisis in a position of strength in terms of capital, liquidity, technology and, importantly, talent. Considering the repo rate and prime rate reduction during the reporting period of 275bps, net interest income remained flat, N$2 013.4 million (2019: N$2 012.2 million). Interest expense decreased by 0.4% while interest income decreased by 0.2%,” said Oscar Capelao, FirstRand Namibia’s Chief Financial Officer.
Regarding the impact of Covid-19 on the group’s earnings, Capelao stated that, “comparing the earnings run rate from pre-March 2020 lockdown period to post, our estimate of earnings lost is approximately N$465 million for the current financial year, being decreased NII N$97 million, NIR N$108 million, higher impairments of N$252 million and PPE expenditure N$3.3 million and HOPE Fund CSR initiative N$3.8 million”.
“The group remained well capitalised with levels above the minimum regulatory requirements. Capital adequacy ratio for the group was 18,2% and CET 1 capital 15,9%. As we deal with the spiralling effects of this pandemic, we continue to focus on what we as a group can do to remain strong, resilient and well-positioned to support our employees, clients, customers and communities across Namibia,” concludes Capelao.
The most recent financial results also confirm an increase in group operating costs (normalised), which increased by 2.6% to N$2 122 million (2019: N$2 069 million). Staff costs also increased by 5.5% and staff cost growth was influenced by the above inflationary wage increase settlement with the union for non-managerial staff. Leave days utilisation in the second half of the financial year was lower given the lockdown restricting movement in the country, contributing to the overall increase in staff cost.
The latest results also show that FirstRand’s total impairment charge increased year-on-year to N$559.7 million (2019: N$214.8 million). The impairment charge is 1.79% (2019: 0.72%) of gross advances while the increased pressure on customers due to Covid-19 also affected the group’s impairments.
Meanwhile, accounting regulations require the group to consider forward-looking information in the calculation of expected credit losses, therefore the group estimated an increase in customer stress caused by the pandemic and resultant economic pressures anticipated over the next 12 to 18 months. 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.
In terms of non-interest revenue, this grew 4.7%, led by fee and commission income growth of 6.2% driven by strong electronic transaction volumes and ongoing customer acquisition. Volumes growth on self-service platforms increased by 14% and the traditional in branch volumes was down 9%.
In addition, insurance premiums have decreased to N$161 million (2019: N$167 million). Key drivers are the low premium inflation environment, increased competition and affordability witnessed by the increase in lapses due to non-payment of premiums. Claims paid for the period declined by 10.1% to N$77 million (2019: N$86 million).
Other annual results highlights:
Pre-lockdown PBT growth was 6.1%.
Normalised cost to income ratio decreased to 52.6% (2019: 52.9%) and
ROE was 16.0% for the period.
Costs were well managed, and growth was at 5.1% for the year.
Headline earnings decreased by 19.1% to N$867 million.
Earnings per share decreased to 313.4 cents (2019: 409.9 cents).