FirstRand to cut lending in African operations

Africa’s biggest bank with operations in South Africa, Nigeria and Zambia says it will rein in lending this year in response to an increase in defaults, a commodity-price slump and slowing consumer demand in its biggest markets, which include.

“This year, we’ve taken a further decision to make further cuts on credit granting, so asset growth will drop,” FirstRand Ltd. Chief Executive Officer Johan Burger said. “The retail cycle has turned and the rest of Africa has also seen some uptick in non-performing loans.”

South Africa’s economy expanded an annualized 0.6 percent in the fourth quarter, the slowest pace since 2009.

The decline in commodity prices has hammered Nigeria, with growth in Africa’s biggest economy expected to decline by 50 percent.

FirstRand will now be more cautious about extending its operations across the continent and has raised provisions for non-performing loans, Burger said.

“The uptick is nothing to be concerned about and there’s a muted impact on our income statement because we proactively raised provisions,” he said.

In the six months through December, FirstRand’s net income rose 1.7 percent to 10.5 billion rand ($683 million) from 10.3 billion rand a year earlier, the company said in a statement on Tuesday. Earnings per share excluding one-time items climbed 3 percent to 1.85 rand and the dividend increased to 1.08 rand a share from 0.93 rand. Non-performing loans increased 8 percent.

“The group is clearly facing major headwinds,” said Greg Saffy, banking analyst and head of Johannesburg-based Cast Iron Capital. “This, coupled with a relatively high price-to-earnings ratio, doesn’t make for an attractive investment case in the short to medium term.”

FirstRand has operations in nine African countries and runs a consumer bank, a vehicle-financing unit, an asset manager and an investment bank. It has steered away from acquiring assets, growing organically across the continent.