Absa Group reports interim profit amid South African retail growth; expects stronger second-half earnings

Absa Group has reported interim headline earnings of R10.2 billion for the first half of 2024, attributing the performance to growth within its South African retail portfolio, despite broader economic challenges.

The group anticipates an improvement in earnings in the second half of the year.

Revenue for the first half increased by three percent to R53.7 billion, while operating costs rose by eight percent to R28.3 billion, pushing the cost-to-income ratio up to 52.7 percent from 50.6 percent. 

Pre-provision profit saw a slight decline of one percent to R25.4 billion, with headline earnings dropping by five percent from the previous year’s high base. 

The return on equity fell to 14 percent from 15.7 percent, though the group maintained a strong capital position with a Common Equity Tier 1 (CET 1) ratio of 12.7 percent, comfortably above regulatory requirements.

Absa’s Group Chief Executive Officer, Arrie Rautenbach, highlighted the resilience of the group’s South African retail businesses, which all reported earnings growth. 

"Despite challenging economic conditions, the stabilisation of our delinquency profile and our integrated strategy focusing on seamless customer experience have driven this recovery," Rautenbach stated.

The Product Solutions Cluster, which includes home loans, vehicle asset financing, and insurance, reported a seven percent increase in headline earnings. Everyday Banking saw a nine percent rise in earnings, while Relationship Banking experienced a modest one percent growth.

However, the Absa Regional Operations retail and business banking (ARO RBB) cluster reported a 12 percent decline in headline earnings, largely due to adverse exchange rates, despite an 11 percent increase in constant currency revenue. The Corporate and Investment Banking Pan African unit's earnings remained flat from the previous year, impacted by higher impairments.

Absa’s customer base expanded by three percent to 12.5 million in the first half, with digitally active customers growing by over 12 percent to 4.3 million, reflecting the group’s ongoing digital transformation efforts. Customer experience scores in the South African retail sector also improved, with fewer formal complaints lodged compared to the previous year.

The group has also made notable progress in its sustainability initiatives, arranging R96 billion in sustainable finance deals since 2021, edging closer to its target of R100 billion by 2025.

Looking ahead, Absa expects full-year revenue growth in the mid-single digits, supported by stronger pre-provision profit growth and a lower credit loss ratio in the second half. 

"We anticipate a stronger performance in the second half of 2024, with further improvements in credit losses and non-interest revenue generation," said Deon Raju, Absa Group Financial Director.