Absa Group’s results for the six months to June 30 were likely to be in line with its guidance in spite of the weaker economic growth and higher interest rates in South Africa, the group said in a trading statement on Friday.
The half year results of South Africa’s third biggest lender by assets, expected to be released on August 14, were expected to show a substantial increase in credit impairments, resulting in a credit loss ratio of between 1.25% and 1.30%, due mainly to the South African consumer being under pressure from significantly higher interest rates, the bank said.
By the end of the 2022 financial year the credit loss ratio, which excludes impairments on investment securities and cash balances, had risen to 0.96% from 0.77% the previous year.
The group expected its normalised financial results, which adjust for the separation from UK-based Barclays, to reveal low single digit growth in IFRS headline earnings per share (Heps) and normalised HEPS for the first half, off a relatively high base.
IFRS earnings per share were expected to increase by mid-single digits year-on-year.
First half revenue was expected to increase by low teens, driven by strong mid-teen net interest income growth, reflecting low double digit growth in customer loans and deposits, combined with interest margin expansion due to higher interest rates.
The group anticipated high single digit non-interest income growth, with strong growth in its Africa Regions operations in particular, and in insurance revenue.
“Given strong revenue growth, we expect positive operating JAWS (which compares gross income growth with growth in expenses) and our cost-to-income ratio to improve further to around 50%, with mid-teen pre-provision profit growth,” the group said.
The return on equity was expected to be slightly below 17%.
Given a strong tier 1 capital ratio, the dividend payout ratio was expected to increase to at least 52% for the period.
The share price closed 1.22% higher at R178.04 on Friday, roughly 11% up on the price a year before on the same day, but the price has trended higher through the 12 months, from more than R209 that it traded at in November.
In February, Absa had forecast its full-year profit to rise 10% to 15%, driven by strong growth on the back of high interest rates. Absa had also forecast pre-provision profit growth in the mid-20s for the full year.
BUSINESS REPORT