Absa Group’s South Africa earnings fell 17% in the six months to June 30 due to rising credit impairments as consumers face increased financial pressure, but the group proved resilient after earnings from other African markets almost doubled.
CEO Arrie Rautenbach said they remained well positioned for growth with the right strategy, an experienced and diverse leadership team and strong balance sheet.
The group’s underlying performance was reflected by 16% higher pre-provision profit, which is profit before setting aside money for bad debts, tax and other items. The interim dividend was raised 5.4% to 685 cents.
Group headline earnings increased 2% to R11.2 billion from a high base a year earlier, as strong revenue growth of 16% was offset by 60% higher credit impairments. South Africa is Absa’s largest market.
“Our deliberate diversification strategy stood us in good stead… given weaker economic conditions and significant pressure on consumers in South Africa,” said Rautenbach.
The group has banks in Botswana, Ghana, Kenya, Mauritius, Mozambique, Seychelles, South Africa, Tanzania, Uganda and Zambia, as well as insurance operations in Botswana, Kenya, Mozambique, South Africa and Zambia. There are also representative offices in Namibia, Nigeria and the US as well as securities operations in the UK and US.
“We will further diversify going forward by deploying resources and capital into attractive growth prospects on the continent, which provides a natural performance hedge for the group, while continuing to invest in South Africa,” he said.
He said they continued to execute on strategy in the aim of becoming a leading pan-African bank. “This is evident in progress we have made against key targets," he said.
Group financial director Jason Quinn said they remained well capitalised to fund growth opportunities.
Absa continued to focus on building its transactional business through investments across its businesses, notably in Private & Wealth, Youth propositions, Bancassurance and Business Banking during the period.
“We are seeing tangible progress in becoming the primary partner for our customers,” said Rautenbach.
Customer numbers grew 4% to 11.8 million, while customer deposits increased 11% to R1.2 trillion. New-to-bank retail transactional account sales rose 23% in South Africa, with active customers in Absa Regional Operations (ARO) up 16%.
Investment in technology and on its digital journey continued. Digitally active customers increased 10% to 3.5 million.
In the Product Solutions Cluster in South Africa, including SA home loans, vehicle financing, insurance, investment, and advisory services, headline earnings fell 13% as credit impairments increased, reflecting significantly higher interest rates and weak economic growth.
Demand in the home loans market slowed, reflecting the subdued property market, while vehicle sales displayed resilience.
Pre-provision profit growth remained strong, as the insurance business performed well, given lower mortality claims, improved investment returns and solid net premium income growth.
In the Everyday Banking segment, including day-to-day banking services in SA such as credit card and personal loans, headline earnings fell 21% due to higher credit impairments.
The customer base grew 2%, with strong growth momentum in the young adult and entry level segments, said Rautenbach.
“The franchise provided a further R250 million in value to primary banked customers through pricing reductions while addressing historic customer pain points,” said Rautenbach.
Key among these was making the Absa Rewards programme free from January. The number of Rewards members grew 26%, with members earning over R400m in value in the period.
In Relationship banking, including wealth and private clients and SMEs in SA, headline earnings fell 9% as credit impairments doubled due to the difficult macroeconomic environment.
Absa improved its SME proposition, expanding the distribution network, tailoring customer propositions and improving ease of doing business.
Absa Regional Operations – Retail and Business Banking, including retail, business banking and insurance products and services for individuals, small to medium enterprises and commercial customers, reported an 84% increase in headline earnings, given strong revenue growth.
The improved performance was supported by digital advances including the launch of a digital onboarding capability to enhance customer experience in six ARO markets.
MobiTap, a first-to-market innovation, allows merchants and SMEs to use smartphones in place of point-of-sale devices to process contactless card transactions in three markets.
Corporate and investment banking grew headline earnings 32%, increasing its contribution to more than half of group headline earnings. There had been strong new client acquisition.
Absa said the economic environment remained uncertain.
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