Firstrand Delivers 10% Earnings Gain Despite UK Motor Finance Provision - Arabian Post

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South African bank FirstRand has reported a 10 percent increase in full-year net income, reaching 41.82 billion rand for the fiscal year ended 30 June, despite absorbing a 2.7 billion rand pre-tax provision tied to a UK motor finance claim.

The provision stems from fallout over a UK Supreme Court ruling and proposed redress scheme by Britain's Financial Conduct Authority, aimed at motorists who allege they were misled or overcharged through dealer-arranged commissions. FirstRand said the uncertainty around the scope of the redress scheme had made it“prudent to raise an additional provision”. Alongside this, it paid 253 million rand in legal and professional fees related to the matter.

Core business metrics showed strength. Normalised earnings rose sharply from 37.9 billion rand in the prior year. Net interest income expanded by roughly 6 percent, fuelled by 6 percent growth in core lending advances and 8 percent growth in customer deposits. The bank's credit loss ratio edged up to 85 basis points, up from 81, reflecting mild strain in its commercial business unit as well as in its UK operations.

FirstRand's performance comes amid a broader regulatory push in the UK. The Financial Conduct Authority has proposed a redress scheme that could cost lenders between £9 billion and £18 billion, following challenges that car dealers arranging finance might have breached consumer protection norms.

Risk analysts see the move as cautious but necessary. FirstRand earlier set aside 3 billion rand under similar claims, then increased expectations as UK regulators clarified the possible liability scope. Some market watchers warn that further adjustments may be required if the redress scheme's final design expands the number of affected customers or firms.

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Despite these headwinds, FirstRand's net profits surpassed many analysts' forecasts. Bloomberg had estimated earnings around 41.2 billion rand. Institutional investors generally responded favourably to the robust deposit base, disciplined credit metrics, and the ability to absorb the UK provision without derailing growth.

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