FirstRand Wants to Cut its Cost-to-Income Ratio More Than Peers

JOHANNESBURG (Capital Markets in Africa) – FirstRand Ltd. wants to be the first large South African bank to bring its cost-to-income ratio below 50 percent as pressure mounts on local lenders to manage expenses amid weak revenue growth.

South Africa’s largest lender by market value is focusing on its insurance, and wealth and investment management businesses to sell more products to its client base. It’s also spending funds on improving operations in its sub-Saharan Africa units to further diversify income steams. When these and other investments are stripped out of its cost base, rising costs become less worrying, Chief Executive Officer Alan Pullinger said in an interview Tuesday.

“When we look at our cost growth we know there’s a couple of percentage points taken up by investment, which is good for us because it’s building our future business,” he said. “We are not overly stressed about run-the-bank costs. We want to be the first big bank to get into the 40s on a cost-to-income ratio.” No time lines are set for hitting the target; “it’s what we aspire to,” Pullinger said.

While Standard Bank Group Ltd. and Absa Group Ltd. have reduced personnel, FirstRand is hiring — mainly to bulk up its digital platforms as it drives more customers onto mobile apps to transact, renew car licenses and locate small businesses from catering to plumbing services.

South African lenders are up against sluggish economic growth and a consumer base battered by rising expenses. In addition they must contend with digital offerings from at least two new entrants in coming months.

For Pullinger the most important indicator amid growing competition from digital challengers is adding new customers to its 8.2 million base. “Nothing talks more strongly than that,” he said. “A lot people talk about going digital and I think, show me evidence of the outcomes.”

Source: Bloomberg Business News