By Nqobile Dludla
JOHANNESBURG (Reuters) – South African bank FirstRand Ltd reported a 10% rise in annual earnings on Thursday, enabling it to absorb the impact of a further 2.7 billion rand ($154 million) pre-tax accounting provision linked to a UK motor finance claim.
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 9 billion and 18 billion pounds ($12 billion and $24 billion).
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 3 billion rand raised in the prior year. In addition, a further 253 million rand of legal and professional fees were incurred in relation to the matter, the bank said.
Despite this provision, FirstRand’s normalised earnings rose to 41.8 billion rand in the year ended June 30, from 37.9 billion rand 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.
($1 = 17.5153 rand)
(Reporting by Nqobile Dludla; Editing by Joe Bavier and Susan Fenton)
