JOHANNESBURG - Banking group Absa rose nearly 6percent on the JSE yesterday despite the lender warning its shareholders to prepare for a massive decline in earnings and a significant increase in credit impairments due to the impact of the coronavirus on the economy this year.
The group said in a trading guidance that headline earnings per share (Heps) and earnings per share (Eps) for the six months to the end of June would tumble more than 20percent below the Heps of 920cents a share and Eps of 918.9c reported last year.
Absa said credit impairments for the four months to the end of April doubled year on year, with large increases in personal loans and credit cards. It said the credit loss ratio would be similar to the one it experienced during the 2009 financial year levels of 1.7percent and well above its through-the-cycle target range.
The lender said the substantial increase in impairments occurred largely in April. “It is difficult to provide guidance for the rest of the year, given the significant uncertainty about the impact of Covid-19, the national lockdown and the macroeconomic outlook,” Absa said.
“These have a material impact on customer loan and transaction volumes and credit impairments, in particular.”
ABSA SAYS credit impairments for the four months to the end of April doubled year on year, with large increases in personal loans and credit cards. Oupa Mokoena African News Agency (ANA)
The Absa guidance was far below that of its peers.
In April, Capitec reported a 19percent increase in Heps for the year to end February, while Nedbank reported a 6.3percent decline in diluted Heps for the year to end December.
However, the two banks said their reported results were yet to feel the full impact of the pandemic.
Absa said it expected the 275 basis points (bps) reduction in interest rates implemented by the South African Reserve Bank so far this year to lower its net interest income by about R1.6billion in 2020, after factoring in the meaningful benefit of its structural hedge.
The bank said it believed there would be another 50bps cut this year. “The annual sensitivity to further rate cuts in South Africa is a R250million reduction per 50bps,” the group said.
Absa said revenue growth would slow down from the first four months and reflect reduced customer loan production and transactional activity on the back of the impact of the lockdown and negative gross domestic product (GDP).
It said it expected the country’s real GDP to fall by 10percent, and its Absa regional operations portfolio to decline slightly on average.
It said its return on equity for 2020 was likely to decline materially from last year’s 15.8percent.
“We expect the group’s Common Equity Tier 1 ratio to remain resilient,” Absa said. “It may decrease to below our board target range of 11percent to 12percent as a consequence of the crisis. However, stress testing confirms that it should remain well above regulatory requirements.”
The group said it was unlikely to declare an ordinary dividend for 2020, given its focus on preserving capital.
The bank is expected to release its half-year results in August.
Absa Group shares closed 5.99percent higher at R82.52 on the JSE yesterday.
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