Absa Group lifted headline earnings a solid 27 percent to R11 billion in the first half of the year as revenue increased, demonstrating a continued recovery from the global economic downturn in 2020, and the half year dividend more than doubled to 650 cents a share.
The bank, which set out a strategy in 2018 to gain market share from when it operated under former parent Barclays, saw normalised earnings from South Africa increase 27 percent to R9.22bn, while normalised earnings from the rest of Africa operations increase 36 percent to R1.77bn.
First half pre-provision profit was solid, supported by revenue that rose 14 percent, underpinned by growth across its business units and supported by a strong rebound in the insurance business in South Africa and increased interest rates across key markets. Non-performing loans fell marginally to 5.3 percent from 5.4 percent.
CEO Arrie Rautenbach said the results reflected strategic choices made in 2018 and “the work done to create a business that is closer to customers”.
“We now have a strong foundation for outperformance,” he said.
In June, Absa announced a strengthened and more diverse executive leadership team. The operating model was also refined, adopting a flatter structure, allowing the group to accelerate strategy execution.
Effective July 1, Absa has five business units, from two previously. All business units reported improved earnings and stronger returns in the first half.
“Key measures are significantly above the pre-Covid levels of the first half of 2019,” said financial director Jason Quinn. He said the bank faces a tougher environment going forward.
IT spend grew 11 percent to R6bn. Digitally active customers grew, including a 10 percent increase to 2.2 million in retail and business banking in South Africa.
Retail and Business Banking (RBB), the group’s largest revenue generator, saw the operating environment become more difficult in the second quarter, but performance indicators were trending positively. Home loans registrations, vehicle asset financing and personal loans, among other areas, increased.
Absa claimed market share gains in retail advances including home loans and vehicle asset financing. Its deposit market share was strong at 22 percent. Customer numbers increased 1 percent to 9.6 million.
RBB earnings from Absa Regional Operations (ARO) increased strongly following good revenue growth.
Going forward, the Everyday Banking, Relationship Banking, Product Solutions and RBB ARO units would be reported separately.
All Corporate and Investment Banking’s (CIB) business units delivered revenue growth. CIB revenue increased 7 percent reflecting growth in client franchise and delivery on its Pan Africa growth strategy.
The largest funder of renewable energy in South Africa, continued to make progress on its sustainability agenda and while its fossil fuel exposure was set to decline, the target was to double its renewable energy loans as a percent of total group loans by 2030. ESG was a focus area going forward.
The group said the macro backdrop deteriorated in the past six months and global growth expectations had reduced materially.
“There are considerably higher inflationary pressures across most of the markets in which Absa operates and policy rates are increasing faster than we expected,” Rautenbach said.
He said the bank was likely to report low double-digit revenue growth for the full 2022 financial year compared with 2021. Operating expenses were expected to increase by low to mid-single digits, with pre-provision profit growth in the teens, resulting in a cost-to-income ratio expected to be lower than 2021 levels. Return on equity is also expected to improve to approximately 17 percent.
Absa’s share price increased 0.58 percent to R187.19 yesterday afternoon, having increased over 25 percent over a year.
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