Absa, SA’s fourth-biggest bank by market value, has reported a profit rebound and reinstated dividends, but has also warned SA’s economy may only recover to prepandemic levels in 2022 as the country continues to grapple with preexisting conditions.
Absa expects GDP to grow 4% in 2021, below the Reserve Bank’s expectation of 4.2%, as fragile business and consumer confidence, stretched electricity supply and the effects of recent civil unrest contend with a global economic recovery and robust commodity prices.
SA’s economy slumped 7% in 2020, the worst recession since World War 2, cutting into profits of banks that were forced to set aside billions of rand to cover a deteriorating outlook for the economy and its customers’ ability to repay loans.
Absa said on Monday headline earnings rocketed 1,364.4% to R8.18bn in its six months to end-June, with the group declaring a R3.10 dividend, representing about a R2.6bn payout.
Absa, with Nedbank, had opted to hold onto dividends earlier in 2021 after the Reserve Bank lifted guidance to hold onto capital.
Absa, which had expected SA’s economy to grow 3.1% in 2021 when it released its full-year results for 2020, says the economic recovery has been faster than expected in 2021, but despite monetary and fiscal support, the economy is still only likely to exceed fourth quarter 2019 levels by 2023.
Absa added that it does not expect the Reserve Bank to raise interest rates in 2021, but has pencilled in 75 basis points in increases for 2022.
Credit impairments fell 68% to R4.7bn to end-June, which improved the group’s credit loss ratio to 0.88%, the midpoint of its through-the-cycle range, from 2.77%.
The comparative period included a management adjustment of R5.5bn, to reflect the deterioration of forward-looking economic conditions, and the substantial payment relief granted to customers, with Absa saying on Monday this has been retained.
Gross loans and advances to customers grew 2% to R999bn, while deposits due to customers rose 10% to R1-trillion.
In morning trade Absa’s shares were trading 1.45% higher at R148.73, having risen a quarter so far in 2021, and having lost 0.6% since the beginning of 2020.
Over the same period the JSE’s banking index has risen 17%, and lost 8%, respectively.
Update: August 16 2021
This article has been updated with share price information.
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