South African lender FirstRand sees similar profit growth in second-half to H1

JOHANNESBURG (Reuters) -South Africa's FirstRand Ltd expects to generate earnings in the second half that are similar to the first half, which rose by 6%, and anticipates softer overall loan growth due to high interest rates and persistent elevated inflation.

The top five private South African banks - among the continent's biggest - are generally considered well-capitalised, conservative in lending and help drive an otherwise ailing economy.

But elevated inflation, high interest rates, regular power blackouts and logistical bottlenecks are taking a toll on the banks' most sensitive retail and small business customers, leading to defaults.

On second half prospects, FirstRand CEO Alan Pullinger said that the group expects the economic environment in its markets to remain largely unchanged, characterised by high interest rates and elevated inflation.

"The group therefore expects to generate earnings similar to the first half," the company said in a statement.

FirstRand posted a credit loss ratio - a measure of bad loans versus total loans - of 83 basis points (bps), up from 74 bps last year.

Pullinger said the group's credit performance continued to play out better than expected in the six months ended Dec. 31, with the credit loss ratio well below the mid-point of the group's range of 80 bps to 110 bps.

Its loans book totalled 1.6 trillion rand ($83 billion), up 11%, driven mainly by corporate and commercial clients. Growth in certain retail loan portfolios as consumers come under pressure, the lender said.

"We're starting to see it (strain on consumer) in the unsecured lending books, we're seeing payment strain starting to manifest. We're starting to see the pick up in non-performing loans," Pullinger told Reuters.

While corporate and commercial clients are fighting through high interest rates, some companies with high debt are starting to buckle under pressure, with the lender's watch list of companies showing signs of distress starting to grow, Pullinger said.

"If you asked me 18 months ago I would have said to you the watch list has been shrinking for a long time. Now in these last six months we've seen this watch list start to grow again," he said.

"This is what the rest of the year will probably be about, a growing watch list of bigger companies that are finding it tough."

FirstRand said its normalised earnings rose to 19.1 billion rand in period, driven by net interest income growth of 14% at 42.8 billion rand.

($1 = 19.2310 rand)

(Reporting by Nqobile Dludla; Editing by Kim Coghill, Mrigank Dhaniwala and Emelia Sithole-Matarise)