FirstRand, South Africa’s largest bank by value, will exit the UK after a massive regulatory hit stemming from the industry-wide mis-selling of car finance.
The lender said it will unwind its ownership of British challenger bank Aldermore, ending nearly two decades of auto finance expansions that have now turned loss-making.
The UK’s Financial Conduct Authority this week announced a sweeping industry-wide clean up that requires UK auto-finance lenders to collectively pay £9.1 billion in compensation across 12.1 million eligible loans. FirstRand said the scale of the payout pushes the UK business outside of its risk appetite. The money set aside to cover its share stands at almost three times the profit extracted from the UK auto finance unit over more than a decade, underscoring the severity of the capital drag.
FirstRand, which entered the UK in July 2006, was unusual in betting on the UK, whereas other South African lenders, such as Standard Bank and Absa, focused on expansion across Africa. FirstRand’s UK exit highlights the challenges found in highly regulated Western consumer finance markets where regulatory and legal hurdles can create liabilities that retroactively wipe out years of profit.