Absa reported today that its credit impairments rose by 60% in the six months to end-June but nevertheless posted an increased profit and earnings growth.
The bank released its interim results for the period ended 30 June 2023 today, in which it reported that its credit impairments had risen to R8.3 billion, resulting in a 1.27% credit loss ratio from 0.91% in the previous period.
The bank attributed this mainly to higher credit charges in the South African retail lending portfolios and relationship banking “given increased interest rates and inflationary pressures”.
However, the company reported that its diluted headline earnings per share grew 3% to 1,317.2 cents from 1,280.5 cents.
Absa saw its headline earnings decrease in most segments, including its Product Solutions Cluster (decreased by 13%), Everyday Banking (decreased by 21%), and Relationship Banking (decreased by 9%).
However, its Absa Regional Operations (ARO) Retail and Business Banking segment saw headline earnings increase by 84% to R905 million, while the Corporate and Investment Bank segment’s headline earnings grew 32% to R5.93 billion.
Absa also saw its net asset value per share grow 9% in the period to 16,352 cents.
Despite the significant increase in credit impairments, Absas’ IFRS common equity tier 1 capital ratio was flat at 13.0%, well above regulatory requirements and higher than the board’s target range of 11.0% to 12.5%.
The bank’s return on equity declined to 16.7% from 17.5% in the period.
However, revenue grew 13% to R52.3 billion and pre-provision profit grew 16% to R26.2 billion.
The company said that, in South Africa, load-shedding, low growth and higher interest rates continue to put businesses and communities under significant strain.
“While we see far stronger growth across our ARO markets, tight monetary policy is likely to provide a headwind to growth, and sovereign risks are still high on the agenda in some countries,” the bank said.
Absa said the economic environment remains very uncertain.
“Geopolitical uncertainty, particularly surrounding the Russia/Ukraine conflict and rising tension between the West and China, look likely to impact the outlook for some time,” it said.
“Headline inflation has softened considerably, helped by significant base effects, and global central banks have signalled that policy rates are likely at or near the peak of the cycle and that any reductions are likely to be delivered slowly.”
“Markets will be watching for any evidence that these tight financial conditions are causing undue strain or risk a sharp slowdown in activity.”
Despite this uncertainty, Absa said it expects the economy to grow by 0.7% in 2023.
However, it warned that electricity supply remains a significant risk for the economy for the foreseeable future, while there is clear evidence that the higher interest rate environment is placing significant pressure on interest-sensitive parts of the economy.
“In addition, degrading rail and port infrastructure present material downside risks to these expectations,” the bank said.
Absa declared an interim ordinary dividend of 685 cents per share, up 5% from 650 cents.