The FirstRand Namibia group has announced that shareholders should expect group earnings to drop by between 15% and 25% for the financial year ending June 2020.

This would be due to the higher credit impairment charge for the financial year, the company said late last week.

Impairment is the loss recognised on the quality of assets, mainly recorded to indicate that expected future earnings from an asset would be lower.

This is then passed through the income statement as an expense and accordingly reduces the profit of the company, and ultimately distributions including dividends.

In an announcement made on the Namibian Stock Exchange, FirstRand said the high impairment is twofold, but leaning more to uncertainties presented by Covid-19.

The Outsurance and FNB Namibia owner said on one end it is driven by deterioration in their loan book, but more significantly by the forward-looking assumptions used in the modelling of expected credit losses from their loan book which was at N$31,5 billion at the end of 2019.

Accounting reporting standards require that the group considers forward-looking information in the calculation of expected credit losses, and the group has estimated an increase in customer stress caused by the pandemic and resultant economic pressures anticipated over the next 12 to 18 months.

"This stress has been incorporated into the calculation of the group's expected credit losses and has resulted in a material increase in provisioning, even though the year to June 2020 only includes three months of the pandemic," said the bank.

The Namibian reported last week that between April and June this year, all commercial banks extended loan-repayment holidays worth around N$9,2 billion, and this had eaten into their earnings which averages at N$3,3 billion per quarter.

Interim figures show that most of FNB Namibia's lending was extended to finance mortgages - a class of lending that has suddenly become troublesome for commercial banks in the country.

The Namibian reported in June that all commercial banks in the country had issued N$53 billion worth of property loans, and were then increasingly seeing poor to no performing loans.

Overall loans not paying any interest or the capital amount were at N$5 billion at the end of March this year or 5,2% of the total loan book. Bank of Namibia governor Johannes !Gawaxab last week said these were now at 5,8% at the end of June.

FirstRand said headline earnings and earnings per share for the year ended 30 June 2020 would also be materially lower than the previous year by between 15% and 25%.

Last year, headline earnings were at N$1 billion, and dividends N$4,09 per share. The group paid a final dividend of N$2,50 per share last year and it is expected that this would be lower too.

In May, the International Monetary Fund's managing director, Kristalina Georgieva, advised commercial banks, especially those severely hit by the economic fallout from Covid-19 to halt dividends for now and allow the growing of needed buffers to cushion them against future uncertainties.

A reduced dividend is expected by the market when the group releases the financial statements on or around the 10 September 2020.

FirstRand's shares last week closed at N$23,01 per share on the NSX. This is normally not their place, but they had fallen by N$10,85 (35%) mid-July from N$31 to N$20,15, just to bounce back to new levels of N$23 and hovered there-around since.

This drop had wiped off at least N$2,9 billion worth of market capitalisation - and had its impact felt afar including the value of investments held by e.g. the Government Institutions Pension Fund.

FirstRand Namibia Limited has under its fold Outsurance Namibia, RMB Investments, the PointBreak Group and FNB Namibia, amongst other companies.

Its shareholders are FirstRand EMA Holdings (Pty) Ltd (58,4%), the general public (26,8%) and GIPF (14,8%).

Copyright The Namibian. Distributed by AllAfrica Global Media (allAfrica.com)., source News Service English