FirstRand Namibia profits increase to N$1.086 billion despite weak economic climate
FirstRand Limited Namibia’s profit after tax increased by 2.4% to N$1.086 billion in the financial year that ended on 31 June 2019, indicating that despite the economic backdrop, the group was able to maintain a return on equity of 20.8%.
According to IJG Research Analyst, Dylan van Wyk, FirstRand’s, the holding company of Rand Merchant Bank, First National Bank and WesBank, overall business model remains resilient to the current recessionary environment as the company announced a special dividend of 250cps on top of the 117cps ordinary final dividend.
“Although much depends on the macroeconomic circumstances going forward, the company remains well positioned should Namibia return to growth and private sector credit growth pick up over the next couple of years,” van Wyk said.
FirstRand’s total assets grew by 12% to N$44.140 billion, which was funded by strong growth in deposits, while deposits increased by 13.8% or N$4.340 billion. However, the loan book grew by only 6.2% or by N$1.766 billion, this is compared to overall private sector credit extension of 7.4% y/y over the same period.
The Group’s non-interest income showed disappointing growth of only 1.3% y/y to N$1.820 billion, while operating expenses were well contained, growing by only 4.4% y/y, to N$2.069 billion.
Van Wyk explained that seeing as the bank increased their holdings of short-term liquid securities, the total risk-based capital adequacy ratio of the group improved from 19.1% to 19.9%.
“With this in mind, the special dividend makes a lot of sense. Seeing as the bank cannot find enough lending opportunities in the current market, while deposits continue to grow, it is best to return cash to investors rather than diluting the return on equity by being overcollateralized. Arguably, a share buyback would be a viable alternative to achieve the same goal,” van Wyk added.