Absa puts brakes on dividend after warning profits could fall by 40%
DURBAN - Absa yesterday slammed the brakes on dividend payment after it warned shareholders that its profits were expected to tumble more than 40 percent for the year to end December.
The group said in a trading guidance for the nine months to end September that its international financial reporting standards headline earnings per share (Heps) and earnings per share (Eps) for the year to end December were projected to fall more than 40 percent compared to last year’s 1 750 cents and Eps of 1 717.6c.
Its said normalised Heps would also fall more than 40 percent compared to last year’s 1 926c.
“We will provide a more specific guidance range once reasonable certainty regarding the extent of the decline has been obtained,” the group said.
Absa said revenue for the nine months to end September remained similar to the 3 percent increase reported in the first half while the rand was 11 percent weaker year-on-year than its Absa Regional Operations (ARO) currencies for the period and this was in line with the first half’s 12 percent.
It said growth in gross group loans slowed slightly to 5 percent year-on-year and in South Africa while retail and business banking and corporate and investment bank’s (CIB) gross loans increased by 3 percent and 5 percent respectively year-on-year.
The group said its credit impairments for the nine months trebled year-on-year, given the substantial first half charge.
“However, third quarter credit impairments were better than expected, with a credit loss ratio slightly above the 100 basis point top end of our through-the-cycle target range,” the group said.
The group said that it incurred a credit loss ratio for the nine months improved to 219 basis points from the first half’s 277 basis points.
The group delinquency profile and non-performing loans deteriorated slightly in the third quarter and said its stage 2 loans increased to 11.6 percent from 10 percent at the end of June while stage 3 increased to 5.89 percent from 5.65 percent, despite CIB South Africa and ARO improving.
The group common equity tier 1 ratio increased to 11.3 percent during the period within the board target range of 11 percent to 12 percent, and its net asset value per share increased by 6 percent year-on-year.
Jeremy Gorven, a senior analyst at Stonehage Fleming, said seven months into the coronavirus crisis, a health check on South Africa’s financial system reveals that banks coped relatively well under stress, recovering to high levels of liquidity and capital adequacy.
Gorven said that the system remained profitable amid a significant rise in impairments and that efficiency improved in a lower revenue environment.
Absa shares closed 0.20 percent higher at R107.27 on the JSE yesterday.