FirstRand Declares Dividend in Expectation of South Africa Recovery

Written by
Roxanne Henderson
Written by

Roxanne Henderson

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(Bloomberg) -- FirstRand Ltd. declared an interim dividend after withholding its final payout last year while Africa battled the worst of the coronavirus pandemic, delivering a sign of confidence even with the continent's vaccine plans at an early stage.

Africa's biggest lender by market value said it's acting “in anticipation of the expected rebound in the economy and to support the resultant balance sheet growth.” The Johannesburg-based lender has brought its dividend cover to the bottom end of its long-term range of 1.8 to 2.2 times, according to a statement on Thursday.

It's the first of South Africa's big four banks to issue a payout and follows a surprise first-half dividend announcement by smaller Investec Ltd. in November. For the country's largest financial institutions, the crisis has further hampered growth in a struggling economy with rising government debt, forcing them to set aside billions of rand against potential credit losses.

South Africa has showed “strong intent” to implement reforms and make headway in “a slow recovery,” according to FirstRand Chief Executive Officer Alan Pullinger. The projects aligned with the government's plans to boost infrastructure development are “trickling in,” he said by phone.

‘Positive Signs'

“There's already some positive signs in the mining industry,” he said. “After a decade, the industry and government are finally finding each other.”

FirstRand's performance beat analyst estimates as profits excluding some items and accounting adjustments dropped 21% to 11 billion rand ($731 million) in the six months through December. That was partly due to provisions for souring loans as borrowers struggled with lockdowns and other hardships related to Covid-19.

The bank's shares rose as much as 4.6% in Johannesburg before paring gains to 3% by 4p.m., outperforming peers on the six-member FTSE/JSE Africa Banks Index.

With global vaccination programs underway and prospects for faster economic rebound, FirstRand now expects earnings in the current year to exceed its performance in 2020.

Earnings Outlook

But the lagging effects of the coronavirus pandemic in its home market and the U.K. mean “the absolute level of earnings for the six months to December 2020 will likely not be repeated in the second half.”

South Africa's banking regulator last month warned lenders that protecting cash reserves must still take priority over payments to shareholders as uncertainty from the pandemic remains, easing earlier guidance to avoid dividends completely.

The owner of retail bank FNB saw weak demand for credit and muted transactional volumes even as business activity improved since June. FirstRand and its peers must now brace for the fallout from a potential resurgence in infections as South Africa heads into winter.

An inoculation drive that started on Feb. 17 may help the nation avoid the worst of a third wave but it's still expected to take 12 to 18 months to vaccinate two-thirds of the population.