Absa Group reports interim profit as SA retail portfolio improves; anticipates improvement in 2nd-half earnings
Absa Group reported headline earnings of R10.2 billion for the first half of 2024 and said it expects an improvement in second-half performance as its South African retail businesses demonstrated earnings growth across the portfolio in the first six months of the year.
“All of our underlying businesses in the South African retail portfolio reported headline earnings growth, which is indicative of recovery in business performance,” said Arrie Rautenbach, Absa Group CEO.
“While economic conditions remain challenging, our delinquency profile has stabilised as a result of the decisive action we have taken. We remain committed to our integrated strategy, a focus on seamless customer experience, and delivering sustainable, balanced growth and value creation.”
Rautenbach will take early retirement from the company, effective on April 15, 2025.
Charles Russon will become interim CEO of Absa Group and Absa Bank effective on Oct. 15, 2024, subject to regulatory approval, the bank said in a statement.
"Charles' appointment will enable a smooth transition, while the board conducts a diligent search for a new permanent group chief executive," Absa said.
Interim results salient points:
Revenue increased 3% to R53.7 billion
Operating costs increased 8% to R28.3 billion
Cost-to-income ratio increased to 52.7% from 50.6%
Pre-provision profit declined 1% to R25.4 billion
Headline earnings decreased 5% to R10.2 billion
Return on equity declined to 14% from 15.7%
Group CET 1 ratio of 12.7% remains well above regulatory requirements
Dividend per share flat at 685 cents
Absa said its Product Solutions Cluster (comprising home loans, vehicle asset financing, insurance, advisory and more) in South Africa, reported a 7% increase in headline earnings.
Everyday Banking (card, personal loans and transactions in SA) headline earnings grew 9%, while Relationship Banking (SME, commercial and private wealth in SA).
The group’s Absa Regional Operations retail and business banking (ARO RBB) cluster reported a 12% decline in headline earnings as exchange rates negated gains.
The business posted an 11% increase in constant currency revenue, underscoring the value of the ARO portfolio as a source of growth and diversification.
The group’s Corporate and Investment Banking Pan African unit reported headline earnings largely unchanged from a high base a year earlier as higher impairments impacted earnings in the period under view.
Total group headline earnings declined 5% from a high base a year earlier, after cost increases outpaced revenue growth. The five-year compounded average growth rate in diluted headline earnings per share is 6%.
The group’s capital and liquidity position remains healthy, with key metrics within the Group’s risk appetite and above the required regulatory minimum levels. The Group’s balance sheet remains robust, with a Common Equity Tier 1 (CET 1) ratio of 12.7%.
“We anticipate a stronger performance in the second half of 2024, also as we see further improvement in our credit losses and stronger non-interest revenue generation,” said Deon Raju, Absa Group Financial Director.
Absa’s active customer base expanded by 3% to 12.5 million in the first half while the number of digitally active customers increased by more than 12% to 4.3 million as the Group drove digital channel usage.
“Our ongoing investments in digital innovation, customer experience enhancement, and our repositioned brand are key drivers for future growth and operational excellence,” said Rautenbach.
Absa has also made significant progress in non-financial performance metrics including sustainability, as the Group continues to deliver against its ambition to be an active force for good.
The group has arranged R96 billion in sustainable finance deals since 2021 and is on track to exceed its target of R100 billion by 2025.
Based on the interventions in place, and excluding major unforeseen macroeconomic, or regulatory developments, Absa said it expects an increase in full-year revenue by mid-single digits.
This will support stronger pre-provision profit growth and, together with a lower credit loss ratio than in the first half, should also support better second-half earnings growth off a low base in the second half of 2023.
Shares in Absa are down some 8% over the past year.
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