Absa’s good results overshadowed by credit impairments

Absa reported a 15% growth in revenue and increased its dividends substantially for the year ended 31 December 2022.

However, the bank saw a 61% increase in credit impairments, resulting in a 0.96% credit loss ratio which can largely be attributed to the Ghanaian debt crisis.

Despite this, the bank’s capital position remains above the board-approved target range, and the Common Equity Tier 1 ratio was strong at 12.8%.

Absa’s revenue grew to R98.9 billion, which allowed the bank to declare a 65.6% increase in its annual ordinary dividend – from R7.85 per share to R13.00 per share.

While the bank’s operating expenses rose 7% to R50.9 billion, it still improved its cost-to-income ratio from 55.2% to 51.5%.

However, Absa’s profits were significantly cut by the bank’s 61% impairment increase. The bank ascribes this increase to “the impact of higher interest rates and inflationary pressures in South Africa” and “significant Ghana sovereign debt-related impairments”.

The bank expected the Ghana debt crisis to negatively impact its results, warning shareholders in a trading update last week that it would result in its credit impairments increasing significantly year-on-year.

However, Absa saw growth in its customer base, picking up around 100,000 new customers in South Africa, the bank’s largest market.

The bank’s digital offerings played a part in this, as its digitally active customers increased by 10%.

Absa was one of the first banks to go to market with Google Wallet and the rollout of the Abby chatbot. Its Absa ID service was also effective, with the bank seeing over 2 million enrollments in the first year.