Huge earnings boost for Absa
Absa has seen a 17% rise in headline earnings despite the challenging operating environment globally and in South Africa.
The group said that the first half of 2025 faced several international developments, including US tariff announcements and continued wars in Palestine and Ukraine.
In South Africa, economic data has been incredibly disappointing, with GDP growth slipping from 0.5% in Q4 2024 to 0.1% in Q1 2025.
Business and consumer confidence slipped early in the year due to tensions within the Government of National Unity (GNU) and two failed attempts to pass the budget.
On a positive note, consumer inflation remained very low through the year’s first half, often below 3%. This allowed the Reserve Bank to cut interest rates to 7.0% by July.
The group’s African Markets saw mixed economic performance in the first half of the year. Ghana’s economy strengthened further, Zambia rebounded, and Kenya performed well despite fiscal tensions.
However, Botswana struggled as the crisis in the global diamond industry further impacted its economy. The fiscal crisis in Mozambique also continues to hurt the economy despite talks with the IMF for a new funded program.
Nevertheless, regarding the group’s performance, net interest income increased by 3% to R36 billion, with average interest-bearing assets up 5%.
The group’s net interest margin decreased to 4.58% from 4.69%, mainly due to deposit margin compression.
That said, South Africa’s net interest margin reduced to 3.77% from 3.93% and Africa regions narrowed to 7.80% from 7.85%.
Non-interest income increased 10% to R20.2 billion, accounting for 36% of Group revenue from 34%.
Credit impairment charges declined 14% to R7.1 billion as lower credit charges in Personal and Private Banking (PPB) as well Corporate and Investment Banking (CIB) outweighed an increase in Business (BB) and Absa Regional Operations Banking.
The credit loss ratio improved to 100bps, at the top end of the through-the-cycle target range of 75bps to 100bps, from 123bps.
Financials
The group’s headline earnings grew 17% to R11.9 billion, and DHEPS increased 16% to 1,422.9 cents per share.
The group’s ordinary dividend per share rose 15% to 785 cents, and represents a payout ratio of 55%.
The group’s RoE improved to 14.8% from 14.0% and its return on average assets rose to 1.14% from 1.04%.
Operating expenses increased 6% to R30 million, resulting in a slightly higher cost-to-income ratio of 53.2% from 52.7%.
In South Africa, headline earnings increased 19% to R7.9 billion, although pre-provision profit was flat at R17.3 billion. South African revenue grew 3% to R38.3 billion, constituting 68% of Group revenue.
Net interest income was flat as margin compression offset customer loan and deposit growth of 7% and 10% respectively. Non-interest revenue increased 9% due to significant growth in Markets SA.
Credit impairments in South Africa fell 185 to R6.2 billion, producing a credit loss ratio of 1.03% from 1.31%. Reductions in PB and CIB outweighed BB’s higher charge.
Overall, South Africa contributed 66% of Group earnings, and its return on regulatory capital (RORC) improved to 14.3% from 12.6%.
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