Absa headline earnings to exceed pre-pandemic levels, says interim FD Punki Modise

The bank’s group headline earnings grew five-fold to R8.9 billion for the first half of 2021.

Absa has reported an increase in interim earnings and resumed dividend payments as the economic effects of the pandemic eased in the first half of 2021.

Interim group FD Punki Modise said, “Pleasingly, our headline earnings exceeded pre-Covid-19 levels and our common equity tier 1 capital ratio strengthened further to the top end of our target range. The group’s balance sheet remains resilient and returns are now above cost of equity.”

Group headline earnings grew five-fold to R8.6 billion, which is higher than pre-pandemic levels, supported by resilient pre-provision profit growth and a significant decline in impairments. While earnings increased strongly, the improvement is off a low base a year earlier. Absa generates most of its income from its operations in South Africa.

According to interim CEO Jason Quinn the results confirm the bank’s cautious approach to preserving capital and liquidity during the crisis.

“Absa’s response to the pandemic and more recent incidents in South Africa has continued to be comprehensive, compassionate and reflective of the best of Absa’s values,” he said.

Retail and Business Banking (RBB), which generates most of the group’s income and has invested heavily in digital, grew headline earnings eight-fold to R4.2 billion. The benefit of a lower impairment charge was partially eroded by a 15 percent decline in pre-provision profit, given high claims and reserving in the life insurance business and customer-centric fee reductions.

Corporate and Investment Banking (CIB)’s headline earnings more than doubled to R4 billion, driven by solid growth across the franchise, most notably in the global markets business and the investment bank. This helped to offset low credit appetite from corporate clients.

The group refined its operating model after an internal and external review found that the group structure was sub-optimal relative to its growth ambitions and the scale of the opportunity across the continent. The major reporting units, RBB and CIB, will be accountable for their product lines across the continent, complemented by a strong, focused and lean ARO central capability and fully enabled country leadership teams.

Absa, which published its first Task Force on Climate-related Financial Disclosures (TCFD) report in March, aims to finance or arrange more than R100 billion for environment, social and governance-related projects by 2025.

Although there are risks to the group’s growth forecasts for the remainder of the year, Absa reported that it expects the local economy to grow four percent this year, which is a change from its three percent growth forecast in March.

“We are now confident, in hindsight, and considering the improvements in our financial momentum, that most of the key strategic calls made in 2018 were good decisions, which have been delivered against and which remain very relevant today,” Jason said.

He added, “It’s also clear that much opportunity still remains and the management team has a strong sense of urgency around re-anchoring and refreshing our strategy against the latest market context and executing against our priorities including making further and deliberate progress on our culture journey.”