JOHANNESBURG - South African lender Absa posted a 3% increase in full-year profit on Wednesday, but warned it would take longer to achieve its 18% to 20% return on equity (ROE) target as the economy splutters.
The results are the first under new Chief Executive Officer Daniel Mminele, who took the helm in January, as local lenders struggle with an economy long characterised by stagnant growth, high unemployment and rising living costs, and which tipped into recession in the final quarter of last year.
Like rival Nedbank, the bank said it would likely not meet its target on ROE, a key profitability metric, on time. It had hoped to achieve this by 2021.
“We still believe that a RoE target of 18% to 20% is appropriate for our group, although we do not envisage achieving it until 2022 at the earliest, which is heavily dependent on the state of SA’s economy,” the lender said in a statement.
The bank’s headline earnings per share (HEPS) - the main profit measure in South Africa - stood at 1,750.1 cents ($1.10) in the year to Dec. 31, compared with 1,703.7 cents a year earlier.
However, on a normalised basis, which accounts for the impact of its split from former parent Britain’s Barclays in 2017, HEPS rose by just 1%.
Since splitting from Barclays, Absa has been trying to win back market share lost under its former parent and set itself a series of ambitious targets, including doubling its share of revenues elsewhere in Africa.
South Africa’s lenders have looked to the rest of the continent for growth amid a weak domestic economy.
Absa’s South African retail bank posted a 2% decline in earnings, hurt by rising bad debts.
The group’s credit impairment charge increased by 24%, mirroring a similar spike across peers.