SA corporates are holding excess cash as a cushion to bridge the timing mismatch between cash generation and sudden cash needs, as business sentiment wanes in a low-growth economy and geopolitical uncertainty delays investment decisions.
Absa CFO Deon Raju on Friday said: “There is a lot of excess cash out there, particularly among corporate clients. It talks a little bit about a lack of confidence. Surplus cash is certainly a trend in SA.”
He was speaking to the lender’s investors, updating them on the company’s performance for the first half of the year, in which it expects its corporate and investment banking (CIB) business to benefit from lower credit losses and strong trading revenue, while net interest income growth remains muted.
Corporates hold cash for several reasons, including the need to avoid premature failures that decimate shareholder value.
The RMB/BER business confidence index fell five points to 40 in the second quarter of the year, with the majority of businesses pessimistic about trading conditions.
RMB chief economist Isaah Mhlanga warned the latest survey results pointed to a loss of momentum in the economy, which had started showing improvement after the May 2024 national elections.
Absa is maintaining the full-year earnings guidance it issued in March, despite an uncertain global economic environment.
For the first half of the 2025 financial year, the group expects mid-single-digit revenue growth, with higher growth in noninterest income than net interest income, it said in a voluntary update.
“Continuing the second half of 2024 trend, net interest income growth is expected to be muted, given mid-single-digit loan growth and some margin compression, particularly in SA,” it said.
Absa expects high single-digit noninterest income growth, with strong trading revenue, and mid-single-digit growth in net fee and commission income.
It expects mid-single-digit operating expenses growth, producing low-to mid-single digit growth in pre-provision profit and a slightly higher cost-to-income ratio than the 52.7% in the first half of 2024.
The group’s credit loss ratio is expected to improve to near the top end of its through-the-cycle target range of 75-100 basis points (bps), from 123bps a year ago. Consequently, it expects mid-teen earnings growth in the first half of the 2025 financial year.
Return on equity is expected to improve to about 14.8% from 14% in the first half of 2024.
The group’s reorganised personal and private banking division is expected to deliver strong earnings growth, driven by lower credit impairments. Revenue growth remains muted, given modest industry loan growth and the group’s risk appetite reduction in personal loans.
In business banking, low revenue growth and a higher credit loss ratio are expected to reduce earnings.
“In terms of CIB and wholesale loan growth, if I look at the market trends, we did grow a bit slower than the market,” Raju said.
“What we see now is a strong pipeline into the second half. June has been a strong month for that business. I would say [however] it’s a bit delayed from a CIB perspective in terms of loan growth.”
The group will release interim results on August 18.
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