FirstRand Says Gordhan in Strong Position to Act on Economy

  • Minister has political capital needed, FirstRand's Burger says
  • Bank optimistic it can grow in South Africa as economy slows

FirstRand Ltd.’s Johan Burger, chief executive officer of Africa’s biggest bank by value, said South African Finance Minister Pravin Gordhan is in a strong position to take the economic steps needed to prevent the country from losing its investment grade credit rating this year.

“I believe he will be given the necessary freedom to do what he needs to do,” Burger said in an interview at the World Economic Forum in Davos on Tuesday. Gordhan has the political capital and “I think the minister of finance is now in the strongest position he can be to be able to push through,” said Burger.

The FirstRand CEO was among banking executives who held meetings with officials from the ruling African National Congress in the days after President Jacob Zuma in December fired former finance minister Nhlanhla Nene and replaced him with a little known lawmaker. The market reaction to Nene’s dismissal, with the rand and bonds tumbling, may deter the government from taking unexpected steps that affect the national treasury.

Within hours of Burger and others speaking with the government, Gordhan was named finance minister, a role he previously held until 2014. Nene’s shock removal came just days after a credit-rating downgrade that left the country one notch above junk status.

“I think the president gets it,” Burger said. “You have to applaud that he was able to make a U-turn on the finance minister.”

Student Protests

Gordhan will present the budget next month and has said the government will have to make “some tough decisions.” Student protests calling for free university education, the worst drought in more than a century and an unprofitable national airline are among factors weighing on the state’s finances. The International Monetary Fund cut its economic growth forecast for South Africa by almost half to less than 1 percent Tuesday as the country struggles with a slump in commodity prices.

“Gordhan has an unbelievable track record of being able to do the right thing when he’s faced with challenges,” Burger said. “There is a chance South Africa can lose its investment grade credit rating, but we’re very encouraged by the understanding and seriousness the minister of finance has put to the issue. That gives us, as business, a lot of confidence.”

FirstRand is confident of growing its business in South Africa this year, Burger said, even as the economy slows and inflation and interest rates rise. The Johannesburg-based lender intends to expand in insurance and wealth management, using its distribution network and new technologies.

With bad debts expected to increase because of growing strain on South African households, the bank cut back on unsecured lending in December and again in January, he said. In the rest of Africa, the drop in the oil price and slowing growth has prompted the company to be more cautious about its rate of investment, he said.

FirstRand hasn’t taken a decision on proposed expansion in Kenya., said Burger. “This is a key market that we want to be in. We’re looking organically and keeping an eye out. We have to find a solution this year. In the rest of Africa, our focus is on execution.”

FirstRand, which operates in eight African countries including Nigeria, Tanzania and Zambia and also has branches in India and the U.K., has dropped 7 percent this year as the outlook for banks has dimmed along with the country’s economic prospects. It fell 1 percent to 39.59 rand as of 9:23 a.m. in Johannesburg, in line with the decline of the seven-member banks index.

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