FirstRand’s liability over the UK probe into vehicle finance commission continues to haunt the financial services group, with it raising a substantial provision for redress, which has weighed on its overall performance.FirstRand said on Thursday that as of the end of June, it has recognised an additional pre-tax provision of £518.4m for potential customer redress arising from the Financial Conduct Authority’s (FCA) review of historical motor finance commission arrangements, and £29.4m in associated costs. The gross undiscounted provision, including the expected extension of the scheme start date, is £807m, it said.The increase from R5.8bn at the end of June last year reflects revised estimates following the FCA’s publication of its final redress framework in March.FirstRand CEO Mary Vilakazi said FirstRand had delivered an “excellent operational performance”, mainly as a result of double-digit profit growth from both FNB and RMB.Earnings growth guidance provided at the end of June 2025 was in the mid-teens and was based on the strong operational performance expected from the South African and broader Africa businesses. On this basis, earnings increased 16% at a return on equity (ROE) of 21.5%, which is at the top end of the group’s stated target range of 18%-22%. “These outcomes reflect the strong topline growth, profitability and improved returns generated by the group’s two largest franchises. The guidance did not, however, include an additional provision for the UK motor commission matter. Disappointingly, the group was eventually required to raise a provision, which has impacted overall earnings,” she said.The financial impact of this provision is material to the year-on-year performance, with headline earnings at R39.7bn, down 5%, the group said.Normalised EPS for continuing operations was up 13% at 796.7c and increased by 10% for total operations to 867.4c.The group has decided to normalise the performance for the UK motor commission provision for both the 2025 and 2026 financial years. With its exclusion, normalised earnings increased 10%, with an ROE of 21.5%, it added.“Given the strong earnings capacity generated by the South African and broader Africa businesses, normalised continuing earnings increased 13% at an ROE of 24.9%. The group considers these metrics to reflect the true ongoing operational performance of the business,” it said.However, HEPS for continuing operations were up just 1% at 693.1c and down 5% for total operations to 712.9c. The ROE remained within the group’s stated range at 18.3%. “Importantly, the group’s consistently high ROE and resultant strong capital position mean that despite the earnings contraction in the current year, the group has delivered its highest ever dividend payout,” she said.The strong capital position has allowed the board to declare growth in dividend of 16% to 280c per share, it said, based on earnings growth excluding the additional UK motor provision and costs. On a continuing operations basis, FirstRand said normalised earnings growth was driven by strong topline growth in South Africa and broader Africa. Net interest income (NII) growth resulted from higher levels of advances and ongoing good momentum in the deposit franchise. Strong non-interest revenue (NIR) growth was generated by RMB and FNB, and supported by Group Treasury.The credit loss ratio (CLR) declined to 105 basis points (bps) from 108bps, remaining below the midpoint of the group’s South Africa and broader Africa through-the-cycle range of 100bps-130bps.However, additional forward-looking information (FLI) provisions were raised, given the potential effect of the Middle East conflict and related oil price disruption, it said.Operating expenses increased 9%, mainly as a result of higher staff expenditure and continued investment in technology and platform-related strategies. FirstRand said the provision for the FCA’s review represents management’s best estimate of the expenditure required to settle obligations, including compensatory interest and incremental legal, regulatory and operational costs to administer the scheme.It has been aligned to the FCA’s final policy statement and determined using a single scenario, reflecting the greater clarity now available on the design of the scheme compared to the significant uncertainty that existed a year ago.“Significant estimation uncertainty remains, given the scale and complexity of the remediation process and ongoing legal developments. Legal challenges to the FCA’s scheme were announced in April 2026, with related hearings expected between December 2026 and February 2027. “These developments are likely to delay commencement of the redress scheme and the timing of any customer payments. The group has not incorporated the potential impact of these legal challenges into the provision estimate,” it said.It added that the ultimate financial impact could “differ materially” from the amount currently recognised, for example if the actual experience of the FCA’s remediation scheme differs from the group’s assumptions once it is implemented. “For illustrative purposes, a 5% increase or decrease in the number of customers that require redress would increase or decrease the provision by £51.5m, it said.Looking ahead, FirstRand’s operational performance is expected to remain strong given the health and quality of its client franchises, all of which remain well positioned to capture a higher share of any additional growth opportunities that emerge in the jurisdictions in which it operates, it said.For the 2027 financial year, FirstRand expects normalised earnings growth of high single digits to low double digits for continuing operations. This growth trend in earnings is likely to continue over the medium term. The group has revised upwards its stated ROE range for its continuing operations to 21%-26% and expects it to remain at the top end of this range over the medium term.Business Day