Financial services group Absa on Monday published interim financial results for the period ended June 2022 showing that headline earnings increased by 30%, and diluted headline earnings per share (HEPS) grew 29.8% to 1 278.4 cents per share.
South Africa’s economic performance post-Covid-19 has been volatile, but generally stronger than expected, Absa said.
The group’s RoE improved to 16.6% from 13.9% and its return on average assets was 1.31% from 1.06%. Revenue grew 14% to R47 billion and total assets increased 11%.
Gross loans and advances grew 11% to R1.2 billion, while deposits rose 10%.
Absa declared an ordinary dividend of 650 cents per share, up 110% from 310 cents.
Credit impairments rose 10% to R5.2 billion, resulting in a 0.91% credit loss ratio from 0.88%, while the net asset value (NAV) per share grew 9% to 15 668 cents.
Absa is active in 15 countries, boasting 1,009 outlets and 35,074 employees.
For South Africa, which contributes 84% of group earnings, headline earnings grew 29%, driven by 21% higher pre-provision profit. Total revenue increased 13%, with non-interest income up 19% and net interest income rising 10%. Operating expenses grew 5%, resulting in a 48.8% cost-to-income ratio from 52.4%.
Credit impairments increased 6%, producing a 0.91% credit loss ratio from 0.75%.
Looking ahead, Absa said that the outlook for the global economy is particularly uncertain. Geopolitical events in Ukraine are acute, and sharp moves in commodity prices and potential supply interruptions are difficult to assess, it said.
“Moreover, dramatic increases in inflation are being felt across most economies, triggering in many the most rapid monetary policy tightening in decades. Economic growth is widely expected to fall, although the extent remains unclear. This macroeconomic environment has increased risk aversion in global financial markets, producing a material headwind for financial flows into emerging markets.”
Absa said it expects South Africa’s economy to grow 2.3% in 2022, as a better-than-expected first quarter is likely to be tempered by the impacts of second quarter flooding in KwaZulu-Natal, ongoing electricity shortages and an increase in strike action in some sectors.
“Sectoral differences are likely to remain significant, with high commodity prices boosting parts of the mining sector, while households face steep increases in fuel, food and other important prices.”
The group anticipates further policy rate increases taking the prime rate to 11% by early 2023, while Eskom’s operational challenges remain a key downside risk to economic growth and investor sentiment, it said.
In this environment, Absa said it expects low double-digit revenue growth, with non-interest income growth slightly higher than net interest income. “We see high single-digit growth in customer loans, while customer deposits will likely grow by low to mid-single digits.”
“Given rising policy rates and inflationary pressures, our credit loss ratio is likely to increase, to the upper half of our through-the-cycle target range of 75 to 100 bps, broadly in line with the first half charge. Consequently, we expect our RoE to improve to around 17%.”
Absa said it aims to increase its dividend pay-out ratio to at least 50% for 2022.
Read: One of South Africa’s biggest banks says the shift to flexible working is paying off