S.Africa’s FirstRand CEO says likely to shrink branches over sluggish economic growth

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JOHANNESBURG (Reuters) – FirstRand will likely need to shrink its branch network over the next decade as South Africa’s largest retail bank looks to digitise and adopt a platform model offering services beyond banking, CEO Alan Pullinger said on Tuesday.
The country’s oldest bank dating back to 1838 reported a 6.1 percent rise in half-year headline earnings on Tuesday, outperforming rivals in retail banking but with costs that are rising above inflation.

“We’re a big old banking group that’s been around for 180 years, so we have lots of branches, and processes, and stuff that’s probably not fit for this future platform bank we want to get to,” Pullinger told Reuters in a phone interview.

Its branch network would likely need to be at least 30 percent smaller in square metres, Pullinger said, with a focus on reducing floor space rather than closing branches.

Pullinger told Reuters the bank eventually wants spending as a proportion of income to drop into the 40s from 52.4 percent currently, and that it had to modernise and find efficiencies.

FirstRand wants to operate as a platform like companies such as Amazon, catering to customers seeking not only banking but services such as car licence renewals.

It is investing heavily in digital technology and working to encourage customers to use its online and mobile channels.

“If we can get them out of the branch, we can start shutting branches,” he said, adding that FirstRand will always need branches, just not as many.

In addition to investing in technology, FirstRand has seen its costs rise as a result of its investments in insurance, savings and asset management, as well as its 2017 acquisition of British mortgage and savings bank Aldermore.

These investments would continue, Pullinger said.

Lenders have struggled to grow traditional revenue in a sluggish South African economy, where consumers have reined in spending and borrowing amid high levels of unemployment and personal debt.

FirstRand is less geographically diversified than its rivals and so is more exposed to these problems.

However, it managed to increase earnings at its retail bank by 13 percent in the six months to December 31, far ahead of its competition.

Its headline earnings per share – the key profit gauge in South Africa – rose to 237.9 cents ($0.1915) from 224.2 cents a year earlier, the bank reported on Tuesday.

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The bank’s shares were up 1.34 percent at 1443 GMT.

($1 = 14.3069 rand)

Reporting by Emma Rumney; editing by Subhranshu Sahu and Jason Neely

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