FirstRand, one of South Africa’s largest financial services groups, has reported that its operational and financial results for the first half of the year are progressing as anticipated, benefiting from a gradually improving macroeconomic climate. In its voluntary trading update for the period ending December, the group stated that the economic conditions across South Africa, the United Kingdom, and the majority of its African operations were largely in line with expectations, though it noted that Mozambique and Botswana continue to present challenging environments. The sustained growth in net interest income is being driven by improving advances growth from the material lending books across all its geographical territories.
While absolute advances growth in the first half of the financial year is projected to be muted, the group anticipates a normalisation and strengthening in the second half. Commercial advances are seeing consistent expansion across the portfolio, supported by focused, targeted strategies, including dedicated lending to Small and Medium Enterprises (SMEs). The group reiterated guidance first issued in September, confirming a gradual uptick in retail lending volumes across both secured and unsecured portfolios. Consequently, growth in retail advances is still expected to surpass that of the previous financial year, with a particularly strong trajectory forecast for the second half as households fully benefit from improving macroeconomic indicators such as moderating inflation and declining interest rates, which are supporting a gradual recovery in household affordability. Advances growth from the broader African operations remains consistent, while the UK operation is projected to deliver slightly better-than-expected new business production, primarily anchored in property finance, where margins have remained resilient. Furthermore, the group’s deposit franchises are growing at levels similar to the previous financial year, which is in line with expectations.
The financial momentum is not solely reliant on lending activities. FirstRand indicated that non-interest revenue (NIR)growth is trending higher than the prior year, a trend attributed to solid momentum within the insurance business, a notable rebound in the performance of the global markets business, and further successful private equity realisations. The group also reported a slight increase in fee and commission income growth, which is expected to gather stronger momentum as the second half progresses. Critically, the group’s core credit performance remains “well within expectations,” with the overall credit loss ratio (CLR) staying at the bottom end of the group’s through-the-cycle (TTC) target range.
Looking forward, FirstRand is confidently projecting full-year earnings growth, calculated off the previous year’s base (which includes the UK motor commission provision), to be in the high mid-teens. This forecast is notably above the group’s stated long-term target range. As a result, the group’s normalised Return on Equity (ROE) is expected to improve, moving closer to the upper boundary of its stated target range of 18% to 22%.
It is important to note that the full-year guidance for earnings growth excludes any potential adjustment to the substantial provision previously raised in connection with the long-running UK motor commission matter. This matter relates to an ongoing regulatory investigation by the UK’s Financial Conduct Authority (FCA) into historical discretionary commission arrangements in the motor finance market. FirstRand stated that it intends to adjust its provision, if necessary, only after the FCA publishes its final redress scheme, which is currently anticipated by March 2026. The banking group has appointed senior legal advisers, including a King’s Counsel, and economic specialists to ensure its response to the FCA’s consultation process is comprehensive.
The company has consistently maintained its position that the proposed redress scheme is disproportionate and that any compensation should not result in the complete loss of cumulative profits made by either the industry or the group over the relevant period. While the eventual financial impact remains unknown and could differ from the R3 billion provision currently held by FirstRand, the group is engaging with the FCA and has reserved all legal rights should the final scheme be deemed unfair or disproportionate. According to Business Day, the FCA estimates that banks implicated in the scheme could face a compensation bill ranging from £8.2 billion to as high as £9.7 billion, driven by the regulator’s finding that certain motor finance companies broke rules by failing to disclose crucial information, leading to consumer detriment. The FCA estimates that approximately 44% of motor finance agreements made since 2007 will be eligible for a payout, averaging around £700 per agreement.