Firstrand Delivers Solid Earnings Growth While Managing UK Motor Finance Redress Provision

Source: Reuters.

Last month, Britain's Financial Conduct Authority (FCA) proposed a redress scheme for consumers with motor finance compensation claims following the Supreme Court ruling, estimating the cost at between £9bn and £18bn ($12bn and $24bn).

While the Supreme Court ruled that car dealers who sold vehicles and arranged the finance do not owe fiduciary duties to customers and lenders are therefore not liable for the commission, it ordered FirstRand to recompensate one claimant, the lender said in a statement.

Due to the possible change in scope of the redress scheme, FirstRand believed "it prudent to raise an additional provision," it added.

The provision compares to R3bn raised in the prior year. In addition, a further R253m of legal and professional fees were incurred in relation to the matter, the bank said.

Despite this provision, FirstRand's normalised earnings rose to R41.8bn in the year ended 30 June, from R37.9bn a year earlier. Overall net interest income rose by 6%, driven by core lending advances growth of 6% and customer deposits growth of 8%.

FirstRand, which also operates across certain markets in sub-Saharan Africa, said its credit loss ratio - a measure of bad loans versus total loans - came in at 85 basis points, up from 81, due to early emerging strain in the FNB commercial business unit and increases in the UK business.