Absa Group reports resilient 2023 first-half earnings, reflecting diverse franchise

Absa Group reported resilient results in an increasingly challenging operating environment during the first half of 2023. Headline earnings increased 2% to R11.2 billion from a high base a year earlier, as strong revenue growth of 16% offset 60% higher credit impairments. “With the right strategy in place, an experienced and diverse leadership team, a strong balance sheet and consistent execution, Absa remains positioned for growth,” the group said in a statement. According to the statement, the “Group’s well-diversified franchise helped mitigate the earnings impact of the increasing strain on consumers in South Africa, which is Absa’s largest market. ” Headline earnings in South Africa declined 17%, given elevated credit impairments, while earnings for regions outside of South Africa, collectively known as Africa regions, almost doubled. “Our deliberate diversification strategy stood us in good stead in the first half of 2023, given weaker economic conditions and significant pressure on consumers in South Africa,” said Arrie Rautenbach, Absa Group Chief Executive Officer. “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.” The Group’s underlying performance during the period is reflected by 16% higher pre-provision profit, which is profit before setting aside money for bad debts, tax and other items. “We are executing consistently against our strategic focus areas, as we strive to become a leading Pan-African bank. This is evident in the continued progress we have made against key targets,” said Rautenbach. “We are particularly pleased with our return on equity of 16.7% and with our cost-to-income ratio improving further to 49.8%, driven by solid revenue growth,” said Jason Quinn, Absa Group Financial Director. “We remain well capitalised to fund growth opportunities,” he said. Absa continued to grow as a primary partner, with a 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, which is shown by improved client experience, accelerated customer growth and solid deposit growth,” 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 increased by 23% in South Africa, with active customers in Absa Regional Operations (ARO) up 16%. Absa continued to invest heavily in technology and its digital journey yielded value across the franchise, with the Group’s digital customer base growing across retail and corporate segments. Digitally active customers increased 10% to 3.5 million. The effects of slower economic growth, increased interest rates and consumer strain were evident in the performance of the Group’s retail businesses in South Africa. Product Solutions Cluster (SA home loans, vehicle financing, insurance, investment, advisory services) Headline earnings declined 13% as credit impairments increased, reflecting significantly higher interest rates and weak economic growth that put consumers under strain. Demand in the home loans market slowed, with application volumes decreasing across the industry, 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. Everyday Banking (day-to-day banking products and services in SA such as credit card, payments and personal loans) Headline earnings decreased 21% due to elevated credit impairments, which was largely due to the adverse economic climate and the impact on customers’ disposable income. Pleasingly, the customer base grew 2%, given strong growth momentum in the young adult and entry level segments. The economic environment remains uncertain. Geopolitical concerns, particularly surrounding the Russia-Ukraine conflict and rising tension between the West and China, appear likely to impact the outlook for some time. Absa expects real GDP growth of 0.7% in South Africa, where electricity supply remains a significant risk for the economy for the foreseeable future. It expects GDP-weighted economic growth in ARO countries to slow to 4.3% in 2023. Based on these assumptions, and excluding further major unforeseen political, macroeconomic or regulatory developments, Absa expects high single-digit revenue growth in 2023, driving high single-digit growth in pre-provision profit, while its credit loss ratio will likely improve substantially in the second half. “Absa’s strong balance sheet and liquidity, together with the value of its diversified franchise, position the Group well to deliver on its strategy over the medium-term.