Relief for Absa customers in South Africa

Absa has seen a jump in earnings, with its retail customers seeing credit impairment charges amidst an improving environment.

In its financial results for 2024, Absa said that two major events are set to have long-lasting impacts on South Africa – the formation of the Government of National Unity (GNU) and the reduction of load shedding.

Although neither of these issues led to immediate faster economic growth, business and consumer confidence are showing positive movement.

Inflation also improved in 2024, allowing for a shallow interest rate cut in September, while the two-pot system also boosted household finances.

The performance across its Africa Regions saw sharply different narratives in 2024. East Africa continued to perform well, while Zambia and Mozambique were hit by drought and unrest, respectively.

The group’s headline earnings for the period grew 10% to R22.059 million. Thus, the group increased its dividend per share by 7% to 1,460 cents per share, achieving a payout ratio of 55%.

South African headline earnings increased by 14% to R15 billion, while Africa regions remained flat at R6 billion.

Revenue for the period increased to R109.9 billion, as net interest income rose by 4% to R71.1 billion, and non-interest income increased by 6% to R38.8 billion.

The group’s credit impairment charges also decreased by 8% to R14.3 billion, improving the credit loss ratio to 1.03% from 1.18%.

The lower charges reflect better early-cycle performance in the Product Solutions Cluster and Everyday Banking as the South Africa retail cycle started to improve and from risk reductions from management.

However, this was partly offset by higher impairment charges in Absa Regional Operations – Retail and Business Banking and Corporate and Investment Banking, albeit off from a low base.

The credit loss ratio of 103 basis points is slightly above the upper end of the group’s through-the-cycle target range (75-100 basis points).

Nevertheless, the group’s credit loss ratio in the second half of 2024 was 85 basis points, well within the range.

Outlook

“The global economic environment is likely to remain very uncertain, largely due to the sweeping and volatile changes being announced by the new US administration,” said Absa.

“Global forecasters have largely taken a cautious approach in translating these early policy indicators into sharp changes in the expected global growth outlook.”

“The current view is for the global economy to grow somewhat slower over the coming years than during the pre-Covid period.”

For South Africa, the group expects real GDP growth of about 2% in 2025 and 2026, with early reaction to the GNU having been positive.

Despite the occasional return of load shedding in early 2025, Eskom’s operational performance since late March 2024 is expected to be resilient, with systematic and lasting load shedding not expected.

Moreover, Transnet, South Africa’s embattled rail and port operator, is expected to slowly gain momentum in its performance.

“Household incomes are expected to increase, with wage growth ahead of inflation and as some receive a boost via withdrawals under the two-pot pension reform.

“Lower interest rates, at least compared to 2023 and 2024, will result in a lower debt service burden, which, together with the aforementioned factors, should see a modest acceleration in household consumption.”

The group did, however, note that the South African Reserve Bank’s Monetary Policy Committee was split on whether to cut interest rates by another 25 basis points in January.

This reflects the expectation that inflation will rise during 2025 towards the mid-point of the central bank’s target and also some caution as a consequence of global uncertainty.

“As of late February, financial markets expect that the bottom of the current interest rate cycle has either been reached already or will be reached following a potential March rate cut.”

Looking at the rest of the continent, Absa expects the GDP-weighted growth for its Africa region countries will rise to 5.3% in 2025.

It believes that disinflation, lower policy rates, improving weather conditions and strong infrastructure investment will boost the region, even if the US cuts development aid.

The group’s guidance thus expects mid-single-digit revenue growth in 2025, with similar growth in net interest income and non-interest income.

“The first half of 2025 credit loss ratio should improve noticeably year-on-year from 123bps in the first half of 2024,” it said.