FirstRand Eyes India Expansion as Law Changes for Bank Investors

FirstRand Ltd., Africa’s largest banking group by market value, said it will expand in India after receiving regulatory approvals.

“We have been given a much wider jurisdiction by the Reserve Bank of India,” Sizwe Nxasana, chief executive officer of the Johannesburg-based group, said by phone on Tuesday. Having been allowed just one consumer banking outlet in Mumbai, the lender can now expand in a 100-kilometer (62-mile) radius from that foothold and is also considering converting from a branch to a subsidiary license.

India’s government is encouraging investment to help fund improvements in infrastructure. This year alone, spending will increase by 700 billion rupees ($11.2 billion) as part of a $1 trillion plan to improve highways, harbors and power plants by 2017. The International Monetary Fund projects growth in Asia’s third-largest economy at 6.3 percent this year compared with 2.1 percent for South Africa.

FirstRand has also applied for a license in Ghana and “hopes to be up and running by mid year,” said Nxasana, who departs as CEO in October. “We’re still looking at opportunities in Kenya, but there’s no license application yet.”

Nxasana, 57, announced his retirement last week and will be replaced by his deputy, Johan Burger. Investment banking head Alan Pullinger will take on Burger’s role.

‘Momentum Slowing’

FirstRand’s net income for the six months through December rose 17 percent from a year earlier to 10.3 billion rand ($847 million) after it increased loans to a growing customer base and fee income climbed, the company said in a statement earlier on Tuesday. Earnings per share excluding one-time items climbed 13 percent to 1.81 rand and the dividend increased to 93 cents a share from 77 cents.

FirstRand, with operations in nine African countries, runs investment and consumer banking, asset management and vehicle financing businesses. Like Standard Bank Group Ltd., it’s expanding deeper into the continent to tap faster economic growth outside its home market.

FirstRand’s investment bank unit, Rand Merchant Bank, last year helped sell more bonds than any other South African lender. Its WesBank unit is the country’s largest provider of auto loans.

“Earnings growth momentum is slowing,” said Greg Saffy, head of Cast Iron Capital, who left RMB’s Johannesburg-based joint venture with Morgan Stanley at the end of 2014. “Stripping out one large private equity realization, Rand Merchant Bank’s earnings fell year on year and Wesbank’s results were flattered by currency translation. FirstRand, on our numbers, trades at a 40 percent premium to Standard Bank which is no longer justified.”

‘Headwinds Increasing’

The stock dropped 2.3 percent to 52.49 rand by 10:33 a.m. in Johannesburg trading. Standard Bank was 0.8 percent lower. The FTSE/JSE Africa Banks Index retreated 1.6 percent.

Debt levels in South Africa would curb loan expansion during the rest of its fiscal year, the bank said.

FirstRand “does not expect rates to move in the second half of its financial year to June 30, economic headwinds are increasing and growth in the system remains very subdued,” FirstRand said in the statement.

“High levels of indebtedness remain in certain segments of the consumer market, which means advances growth should stay at current levels and corporate activity is unlikely to pick up significantly.”

Before it's here, it's on the Bloomberg Terminal.