FirstRand, a major South African bank, announced its plans to withdraw from its UK challenger bank, Aldermore. The decision follows a significant increase in provisions related to a UK motor finance redress scheme, which the bank considers costly and fundamentally flawed. FirstRand raised its provisions for mis-sold motor loans by £510 million, bringing the total to £750 million (approximately $993.4 million). This adjustment occurred shortly after the UK markets regulator finalised the £9.1 billion compensation plan for motorists affected by the scandal.
FirstRand stated that protecting shareholder value and ensuring Aldermore’s future success were key considerations. The group will collaborate with Aldermore’s board and relevant regulators to ensure a smooth ownership transition. FirstRand, one of South Africa’s largest financial institutions, offers a comprehensive range of banking products and services. Aldermore, acquired by FirstRand in 2017, operates as a UK-based bank focused on providing financial services to small businesses, homeowners, and individuals.
The UK’s Financial Conduct Authority (FCA) has accused the motor finance industry of failing to adequately disclose commissions and contractual relationships between lenders and car dealerships, which allegedly led to inflated vehicle loan rates between 2007 and 2024. The FCA defends the redress scheme, stating it provides certainty and cost-efficiency. A spokesperson noted that without the scheme, lenders would face higher costs through the Ombudsman or courts.
As a result of the increased provisions, FirstRand now anticipates its full-year normalised earnings to decline between 4% and 9%. Other banks, including Lloyds, are also assessing the financial impact of the motor finance redress scheme. Lloyds, which has allocated nearly £2 billion, will provide an update when it releases its first-quarter results in April. Close Brothers, another lender, is under scrutiny, with its shares declining following a report questioning its exposure. Close Brothers has set aside around £300 million and disputes the report’s claims.
