FirstRand SWOT & PESTLE Analysis

Strength

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Weakness

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Opportunity

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Threat

1. Increasing threat of bad debt in operating markets: Bad debt is a loss that a company incurs when credit that has been given to customers becomes a non performing asset, either because the debtor is bankrupt, has financial problems or because it cannot be collected. It is expensed on the income statement. The countries that FirstRand operates in are mostly prone to Political instability and are under developed. Almost all of these countries lie in the continent of Africa nearly 75 % of which is prone to political instability. Therefore, there is a big chance that the borrower of these countries can default on their debts thus leading to bad debt. The company should be careful about its lending activities and should focus on B2B lending, which has a lesser risk of default.

2. Fast paced regulatory changes: As a Multinational Company, FirstRand is prone to disadvantages of regulatory changes. This is also known as regulatory risk. Regulatory risk is the risk that a change in regulations or legislation will affect the security of a company or industry. Companies have to follow the rule and regulations set by governing bodies that oversee their industry. Therefore, any change in regulations can cause a chain reaction across an industry. These regulations can increase costs of operations, introduce new legal and administrative hurdles and cost, and sometimes even restrict a company from doing business. For example, Tax policy reforms can affect the bottom rung for businesses and individual investors alike. Any change to income tax law directly affects the income of any company of industry and may present new regulatory risk.

3. Unstable political conditions: One of the important systematic extraneous factors for a company’s growth is the stability of the political conditions of the country it operates in, which not only significantly influences the volatility index but also highly impacts the customer’s trust. Most of the Operation of FirstRand is based in the continent of Africa. It operates in the countries like Botswana, Swaziland, Mozambique, Zambia, Tanzania, Ghana, Nigeria, Kenya and Angola. Some of these countries like Swaziland, Mozambique are highly volatile and also do pose a threat for political instability through civil moments and coups. These instabilities have the risk of property loss and bad debt which may lead to the loss in market Cap and value of the company.

4. Threat from potential new entrants into the financial services market: The banking industry in South Africa is quickly evolving with the emergence of new entrants, Client expectation and innovation. These trends are fundamentally transforming the South African banking landscape from an industry dominated by four incumbents with segment-specific challengers, to an industry with a variety of competitors capturing a significant share of the value pool across retail and corporate banking. Some of the newly established competitor of FirstRand is Discovery Bank, Bank Zero and TymeDigital. Therefore, FirstRand needs to evaluate where it stands in the evolving landscape and implement sound, attainable and competitive, client-centric strategies. This will be a challenging task but they need to respond quickly or risk their market share being squeezed by new, low-cost innovative competitors.

Political

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Economic

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Social

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Technological

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Legal

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Environmental

1. Initiatives to combat climate change: South Africa experienced a recent drought that is raising water security concerns across all sectors of the economy. Reduced water availability is compounded by backlogs in water infrastructure maintenance, which pose continuity risks to FirstRand’s direct operations and its client’s activities. Changes in rainfall, heat waves and extreme weather events pose a risk to FirstRand’s physical assets and its clients’ physical assets. Changing climatic patterns in some parts of the country have already led to a decrease in lending in geographical areas where there are drought conditions leading to a shift in availability of finance in traditionally well-established agricultural areas. Through RMB, FirstRand has taken part in the Renewable Energy Independent Power Producer Procurement Program (REIPPPP) run by the Department of Energy. The participation presented an opportunity to expand existing business services by promoting the benefits of investing, developing and obtaining finance for renewable energy projects to clients.

2. Reduction of energy risk: Financial services industry has to majorly support the development of renewable energy facilities that will decrease future dependency on coal. FirstRand has identified and assessed the energy risks under four categories: strategic risk, business risk, credit risk and operational risk. FirstRand is also actively participating in discussions with development finance institutions and climate change funds to facilitate finance for clients and help stimulate and distribute investment into a low-carbon economy. The group is contemplating to increase its involvement in energy related opportunities to adapt its business, and develop relevant finance products and solutions for carbon-constrained consumers and shun off dirty energy projects. FirstRand has taken a major step by joining local banks and not providing funding for the Thabametsi and Khanyisa independent power producer (IPP) projects as well as for other new coal-fired power plants in South Africa in 2019.