Absa sees positive growth in first half of 2022

Absa has published a trading update for the five months ended 31 May, with the group seeing positive growth in both revenue and customer numbers.

Total revenue growth for the five months improved strongly, increasing by low double digits year-on-year, the group said.

“Reflecting solid loan growth and the margin benefit of rising interest rates, net interest income was higher than we expected, increasing by low double digits year-on-year. As expected, non-interest income growth improved materially, rising by low double digits year-on-year.

“Life insurance revenue rebounded very strongly off a low base that included significant Covid-19 claims and provisions. Fee and commission income grew mid-single digit year-on-year while trading revenues were at similar levels to the high base recorded in the prior year.”

Growth in gross customer loans was in the high single digits, reflecting improved growth in Corporate and Investment Banking (CIB), with Retail and Business Banking (RBB) also growing high single digits, driven largely by home loans and vehicle and asset finance.

Operating expenses grew by high single digits year-on-year, in part due to considerably higher incentives, reflecting the bank’s improved performance, it said.

Based on its performance for the first five months, and current expectations for the operating environment, Absa’s financial guidance for the first half of 2022 is as follows:

• We expect revenue for the half to increase by low teens year-on-year, driven by strong non-interest income growth due in part to improved life insurance revenue off a low base. We expect low double-digit net interest income growth, benefiting from rising interest rates.

• Operating expenses are expected to increase by high single digits year-on-year, reflecting performance costs, plus continued growth in marketing and technology investments.

• We expect wide positive operating JAWS for the half to produce substantial pre-provision profit growth, while our cost-to-income ratio is likely to improve noticeably to the low 50s.

• Our credit impairments are expected to increase year-on-year, resulting in a credit loss ratio in the upper half of our through-the-cycle range, versus 88 basis points in the first half of 2021. Given the uncertain macroeconomic outlook, our loan coverage remains strong, with conservative forward-looking provisions.

• We expect our return on equity to improve substantially year-on-year to around 17%, well above our cost of equity.

• As previously guided, given our strong CET1 ratio, we expect to increase our dividend payout ratio to 50%, from 30% in the first half of 2021.

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