(Bloomberg) -- FirstRand Ltd. is doubling down on South Africa in a bet that interest-rate cuts and economic reform will create growth opportunities, where it can spend excess cash sitting on its books.
The country’s biggest lender by market value is eying post-election efforts to improve the performance of South Africa’s battered infrastructure and energy sectors, while forecasting that the central bank will help the economy by cutting rates starting later this month.
“The economic reforms that are possible in South Africa should mean that there are growth opportunities,” Chief Executive Officer Mary Vilakazi told Bloomberg Television’s Jennifer Zabasajja Thursday. “We want to make sure that we’ve got enough resources to participate.”
Results released Thursday for the year through June show FirstRand’s tier one capital ratio at 13.5%, above its board-approved range of 11 to 12%. Its return on equity at 20% is also at the top of the lender’s target range.
Business confidence has improved since the African National Congress lost its parliamentary majority in May 29 elections, forcing it to ally with rivals to form a broad coalition focused on spurring an economy that has grown just below 1% annually for a decade.
“Our expectation is that we’re going into a cycle where more of the economic reforms are enacted,” she said.
In addition, FirstRand expects the central bank to reduce rates by a cumulative 50 basis points at its upcoming meetings in September and November, followed by another 25 basis-point cut by the end of June.
“When rates come down and inflation comes down that will bring much needed relief to households,” she said. “We will still stick to low to medium risk customers. Hopefully a bigger cohort of them will have affordability,” as borrowing costs are reduced.
The South African Reserve Bank, which will deliver its next policy decision on Sept. 19, has held its benchmark rate at 8.25% since May 2023, even as inflation has cooled to an annual 4.6% in July, down from a post-pandemic peak of 7.8% two years earlier.
FirstRand is also examining other African markets — where rivals Standard Bank Group Ltd. and Nedbank Group Ltd. have already tapped growth — with the lender targeting Ghana, Mozambique, Botswana and Namibia.
“If you look at a country like Namibia, where there are opportunities coming for that country with oil and gas explorations over the next couple of years, and green hydrogen projects, we want to make sure that we’ve got capacity for those countries,” she said.
©2024 Bloomberg L.P.