Africa's biggest bank expects profits to fall by a fifth due to Covid-19

Johannesburg-based First Rand says it expects 'materially higher' credit impairment charge to weaken bottom line

A car drives along a motorway in Johannesburg, South Africa, Saturday, April 4, 2020. South Africa went into a nationwide lockdown for 21 days in an effort to control the spread of the coronavirus. The new coronavirus causes mild or moderate symptoms for most people, but for some, especially older adults and people with existing health problems, it can cause more severe illness or death. (AP Photo/Themba Hadebe)

A car drives along a near-empty motorway in Johannesburg during a 21-day lockdown period to control the spread of the coronavirus. Africa's biggest lender, FirstRand, says provisions made for likely bad loans as a result of the weaker economy will dent profits this year. AP Photo

Bloomberg

Jun 04, 2020

FirstRand, Africa’s largest bank by market value, expects full-year earnings to decline by more than 20 per cent as the fallout from the coronavirus pandemic spurs a jump in impairments.

Normalised earnings per share for the 12 months through June will be lower than the 4.97 rand (Dh1.08) reported a year earlier, the Johannesburg-based lender said in a statement on Thursday. A full results report will be released on September 10.

A “materially higher credit-impairment charge” is being driven mainly by forward-looking assumptions to model expected credit losses, while there has also been a deterioration in its lending books, it said.

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Lower interest rates weighed on lending income, while non-interest revenue growth “showed a marked decline” as a lockdown in South Africa resulted in a drop in transaction volumes.

The profit warning from FirstRand, the only of the big four South African banks to report earnings outside the calendar year, follows similar trading updates from its Johannesburg-based peers, which have all warned of a similar decline for the first six months of the year.

The economy could contract 7 per cent this year due to shocks caused by the virus and a lockdown to curb its spread, according to the central bank. That would be the most in at least six decades.

FirstRand fell 2.3 per cent as of 2.21pm on Thursday in Johannesburg, leading declines on the five-member South African banks index, which was down 1.4 per cent.