Independent Newspapers

Photo by Simphiwe Mbokazi.

The country's biggest retail banking group, Barclays plc-owned ABSA (ASA), boosted headline earnings by 21% to R9.719 billion for the year ended 31 December 2011.

This translated into diluted headline earnings per share of 1,350 cents versus 1,115.7 cents previously.

The group declared a final dividend of 392 cents per share, bringing the total dividend for the year to 684 cents per share, representing a 50% increase.

ABSA's return on equity (RoE) improved to 16.4%, reflecting a higher return on assets (RoA) of 1.32% (2010: 1.10%), offset by reduced leverage.

The net interest margin on average interest-bearing assets widened to 4.11% from 3.94%, while non-interest revenue grew 10% and accounted for 46.7% of total revenue (2010: 45.5%).

Operating expenses growth was contained to 6%, improving Absa's cost-to-income ratio to 55.5% (2010: 56.2%).

Loans and advances to customers declined 1% to R504 billion while credit losses decreased 15% to R5.081 billion, resulting in a 1.01% credit loss ratio (2010: 1.18%).

Non-performing loans (NPLs) as a percentage of loans and advances improved to 6.9%, due to reduced new NPLs, greater write-offs and rehabilitating more accounts. Absa's loans subject to debt counselling reduced to R3.4 billion from R7 billion the previous year.

The group's net asset value (NAV) per share grew 11% to 8,690 cents (2010: 7,838 cents) while its Core Tier 1 capital adequacy ratio improved to 13.0% (2010: 11.7%), well above regulatory requirements.

Commenting on the results. Absa said it had delivered on its key commitments for 2011, including growing revenue faster than operating expenses.

“The Group's pre-provision profit increased 9% to R20,374 million. Improved non-interest revenue growth, lower credit losses, better cost containment and a wider net interest margin were the primary reasons for Absa's headline earnings growth. These drivers outweighed the impact of lower loans and advances, and a higher effective tax rate.”

“Retail Banking's 33% headline earnings growth was the principal driver of the Group's 21% increase. Financial Services and Absa Business Bank (ABB) increased earnings 7% and 5% respectively. Absa Capital's headline earnings decreased 10% after a difficult second half,” the group noted.

Looking ahead, however, the group cautioned that global economic conditions remained challenging. Key structural weaknesses in the Eurozone still needed to be addressed, the US economy faced the uncertainty of an election year and emerging markets were looking at having to navigate the downside risks created in developed countries.

However, Sub-Saharan Africa's GDP was expected to grow 5.5% this year.

“For South Africa, the external environment is unlikely to support stronger growth and we expect the economy to grow just 2.8%. Slightly higher inflation will place some pressure on real household income and the labour market is expected to remain weak, which suggests consumers will remain vulnerable and corporates cautious in their business decisions. We expect the Reserve Bank to increase interest rates in the fourth quarter, albeit at a slow pace.”

“Against this fragile macro backdrop, sector asset and revenue growth is likely to remain muted. However, Absa should continue to benefit from its hedging strategy. Containing costs remains a priority and management is committed to keeping cost growth below revenue growth again this year. Together with an expected credit loss ratio of below 1%, the Group's returns should improve further. Absa will continue to work closely with Barclays to capture the opportunities the combined franchises offer in the rest of Africa,” Absa said.

“Absa remains well positioned for expected regulatory changes with a strong capital position and will continue to improve its liquidity,” it added. - I-Net Bridge