Absa expects its headline earnings for the first six months of the year to drop amid a challenging operating environment.
In a trading statement published after the JSE closed on 26 June, the group said that economic activity in South Africa has been weak, with GDP shrinking in the first quarter of 2024.
“Consumers remain under pressure, with higher average interest rates than the first half of 2023, and business activity has been muted,” said that group.
The group said that retail credit has slowed.
Although economic growth in Absa Regional Operations (ARO) has been stronger than in South Africa, central banks have maintained restrictive monetary policies as inflation remains elevated.
“Weaker average exchange rates versus the Rand have been a slight drag on group revenue, operating expenses and headline earnings for the period.”
The group said that its financial results for 2024 will also be impacted by base effects, with the first
half of 2023 headline earnings being 14% higher than the second half of 2023.
“In the first half of 2024, we expect low single-digit revenue growth, with net interest income increasing by high single digits, broadly in line with customer loan and deposit growth.
“Noninterest income is expected to decrease by low single digits, with modest growth in fee and
commission income outweighed by noticeably lower net trading income and net insurance income.”
“We expect high single-digit operating expense growth, resulting in slightly lower pre-provision profit in the first half of 2024.”
The group said that its credit loss ratio is expected to be similar to the 127 basis points in the first half of 2023.
There were lower credit impairments in Product Solutions Cluster, Everyday Banking and Relationship Banking.
However, there were higher charges in corporate and investment banks and ARO retail and business banking off low bases.
The group still expects its credit loss ratio for 2024 to improve from the 118 basis points seen in 2023.
“Some items that negatively impacted the second half of 2023 continued into the first half of 2024, including applying hyperinflation accounting in Ghana, further losses on the Naira and costs related to our broad-based black economic empowerment transaction,” said the group.
“We expect a substantially lower Barclays PLC separation impact with these four items expected to reduce first half 2024 earnings by approximately 3%.”
Thus, the group expects its headline earnings to decrease by mid- to high-single digits in the first half of 2024.
Earnings are also expected to decline from high to low double digits.
The group’s ROE is also expected to decrease from 15.7% to roughly 14%.
That said, given a strong Group common equity tier 1 capital ratio at the top end of our board target range, the group expects to declare a flat interim dividend per share.
The group will release its 2024 interim financial results on 19 August 2024.
The market has not responded well to the update, with the group’s share price dropping by close to 9% since the start of the day.
Read: Over 600 businesses in South Africa bite the dust in 2024
