Business NEWS

Things aren’t going well for the FirstRand: sees lower profit on bad debts

By Amarendra Bhushan for CEOWORLD Magazine Updated:December 2, 2008

FirstRand said its main banking unit FNB had seen a significant rise in bad debts in its mortgage book and expected residential mortgage impairments to worsen as homeowners battle higher interest rates and a slide in property prices.

Advances at the group’s retail lending businesses, which include vehicle financing unit WesBank, were flat so far this year and corporate lending growth had been materially lower than in the year-ago period, FirstRand said.

According to the trading statement, the results for the year ended June next year will be down between 0% and 15%. Here are some of the highlights (or perhaps lowlights) of the announcement.

1) Residential home loan impairments have hit 148bps (compared to 122bps for the six months ended June 2008), and are predicted to hit 160bps before they start to improve. The group’s long-term target is 70 to 90bps, and the target given in June for the down cycle is 130 to 145bps. Whichever range you chose to use, December’s numbers will represent a breach of the target.

2) RMB’s international equity portfolio sustained further losses to the tune of R260m, compared to a R1,4bn loss for the year ended June. The portfolio is now worth just $18m.

3) RMB absorbed big losses on the back of the Dealstream collapse (see Dealstream placed under curatorship and RMB could take R215m smack on Dealstream), and according to the statement, “these losses consist of a bad debt provision of approximately R220m for our claim against Dealstream and a loss of around R115m on the disposal of the portfolio it had to take over from Dealstream.”

4) RMB also became the inadvertent owner of several companies thanks to the Dealstream debacle. “All that remains of the portfolio are significant investments in Vox Telecom (R318m), Simmers & Jack Mines (R359m) and Control Instruments (R51m). As a result of the significant shareholding in and influence that we now have over these companies, we are obliged to account for them as associates and these investments will be managed as part of our private equity portfolio.” But no matter, because “the group believes value can be extracted from these investments over the longer term”.

5) Wesbank, always a leading indicator, is looking especially dour. The vehicle finance business’s profitability will be down materially, after dropping almost 40% in June’s results. On the plus side, Wesbank’s Australian business has finally been disposed of for a loss of R220m.

6) The group had been planning to expand its vehicle finance business into Brazil via a joint venture between WesBank and Banco do Brasil; that plan has been shelved due to “the current state of world markets.”

Like this article! ‹ Mwana Africa Plc Considers Halting DRC Diamond Exploration after BHP pulls out Kenya PM Raila Odinga wants to Triple Natural Gas, Gasoline Reserves ›
Share this Post: Get It Delivered To Your Inbox