Absa forecasts high single-digit pre-provision profit growth for 2024

Absa store. The group's number of digitally active customers increased from 3.4 million to 3.8 million. Photo: Picture: Leon Lestrade/ Independent Newspapers

Absa store. The group's number of digitally active customers increased from 3.4 million to 3.8 million. Photo: Picture: Leon Lestrade/ Independent Newspapers

Published Mar 12, 2024


Absa’s normalised headline earnings increased 1% after pre-provision growth of 6% was offset by higher credit impairments, particularly in South Africa, and credit loss ratios were likely to remain higher than their target ranges in 2024, the bank said yesterday.

Revenue grew by 8% to R104.5 billion, with stronger growth generated within Africa Regions.

CEO Arrie Rautenbach said in an online presentation economic growth in South Africa had been worse than they had expected and earnings growth was, as a result, also below their targets for the past year.

He said, however, that the group was now fundamentally changed and much more resilient and diversified since its split from Barclays in 2018.

CEO Arrie Rautenbach.

“We are seeing the benefits of the strategic choices we made in 2018, as is evident from our diversified business, growing customer franchise and engaged workforce. The underlying franchise is strong and growing,” he said.

He said the operating environment in South Africa was affected by continued electricity supply disruptions, supply chain logistic issues and sticky inflation along with a higher interest rate environment.

However, Africa Regions reported very strong growth, well ahead of South Africa.

He said customer acquisition had been strong across all the group’s businesses. The insurance business had also performed well with some 978 000 stand-alone policies sold in 2023. The number of digitally active customers had grown by an average 20% every year since 2018.

The group customer base expanded 4% to 12.2 million in 2023 and customer experience scores, which measure the quality of service experienced by customers, increased across business units.

Rautenbach said they were benefiting from organisational gains due to a strengthened leadership team and a reorganised business model done in 2022.

The black economic empowerment transaction, which placed 7% of shareholding in the hands of employees and communities, would further support a culture shift derived from a value refresh in 2023, he said. February 2024 saw the launch of its repositioned brand.

Absa also invested in other areas for growth, recruiting additional front-line staff, acquiring new technology and boosting its brand.

These were among costs that contributed to a 10% increase in operating expenses – the cost-to-income ratio, however, remained within targets, he said.

The number of digitally active customers increased from 3.4 million to 3.8 million.

Chris Snyman, interim financial director, said that over the past five years the balance sheet had been strengthened, diversification enhanced and the group continued to grow, while focusing on efficiency.

Compound revenue growth came to 7% since 2018, while the cost-to-income ratio had improved to 52% from 58% in 2018.

As evidence of diversification, the Africa Regions segment operations grew to 29% of total group pre-provision profit, compared with 20% in 2018.

The group Corporate and Investment Banking arm contributed a third of group pre-provision profit, compared with 28% in 2018.

During 2023, Absa acquired HSBC Mauritius’s Wealth, and Personal Banking and Business Banking businesses. Further afield, an office was established in Beijing as it looks to be a facilitator of trade flows into Africa through a presence in the north, west and east of the globe.

At a group level, the Product Solutions Cluster (PSC), comprising SA home loans, vehicle financing, insurance, investment, and advisory services, saw headline earnings decrease 24% weighed by higher impairments in the secured lending businesses, offsetting solid growth in Insurance SA.

The home loans market share was maintained in a subdued market, which saw application volumes decrease by 17% across the industry.

In the Everyday Banking (EB) an additional R500 million in value was extended to customers through value-added initiatives, including making Absa Rewards free. A total of R1bn in cumulative pricing relief had been extended to Everyday Banking customers since 2020.

The active customer base grew by 2%, with notable growth in the young adult and retail affluent segments, said Rautenbach. New-to-bank customers grew by 21%.

In Relationship Banking (RB), comprising wealth and private clients and SMEs in South Africa, headline earnings fell 1% as investments were made in digital and front-line staff.

In Corporate and Investment Banking (CIB), CIB recorded strong results driven by a pan-African strategy that was implemented several years ago. Headline earnings increased by 23%.

Absa Regional Operations – Retail and Business Banking (ARO RBB) grew headline earnings by 27% to R1.5bn on the back of strong 27% pre-provision profit growth. This active customer base increased by 16% to 2.4 million.

Sustainability-linked financing in Africa increased to R42.6bn, including providing R31bn in financing for renewable energy projects in South Africa.