Absa is opening the taps
Absa says there has been modest retail loan growth in South Africa over the year, but it is slowly starting to extend loans to customers.
This was provided in the group’s latest guidance for 2025, where the group expects mid-single-digit revenue growth.
The group said that it expects stronger growth in non-interest income than in net interest income.
“Net interest income growth will remain muted, due to modest retail loan growth in South Africa and slight margin compression,” it said.
“However, it will improve in the second half. We expect mid- to high single-digit customer loan growth.”
The group said that the move will be driven by strong second-half growth in wholesale lending and mid-single-digit deposit growth.
For 2026, the group’s net interest income is expected to improve further, driven by the mid- to high single-digit loan growth.
Within non-interest income for 2025, fee income growth remains moderate.
Net insurance income is also lower due to the disposal of its insurance business in African regions. Trading revenue, however, continues to grow strongly.
The group’s credit loss ratio is expected to improve to the upper half of its through-the-cycle target range of 75 to 100 basis points (103 bps in 2024), resulting in lower credit impairments.
There were improvements in Personal and Private Banking (PPB), Corporate and Investment Banking (CIB) South Africa and Absa Regional Operations Retail and Business Banking (ARO RBB).
These improvements offset increased charges in Business Banking (BB) and CIB ARO.
The group also expects mid-single-digit growth in operating expenses, resulting in a slightly higher cost-to-income ratio than the 53.2% recorded in 2024.
This comes from the low to mid-single-digit growth in pre-provision profit. Direct cost savings will also offset higher performance cost growth.
Thus, the group expects an RoE of around 15% from 14.8% in 2024, with headline earnings per share growth in the low double digits.
The group expects to maintain its dividend payout ratio of 55% for 2025.
While the group is headquartered in South Africa, it stated that the weaker average rand for the period should slightly underpin earnings.
Africa Regions’ earnings growth should be noticeably higher than South Africa’s.
From a divisional perspective, we expect strong ARO RBB earnings growth, continued momentum in CIB and a minor head office loss to drive group earnings growth.
This will outweigh moderate PPB growth and lower BB earnings.
Outlook
Absa forecasts improved GDP growth across all its key markets in 2026, with significantly stronger GDP growth from its African regions than from South Africa.
That said, the rand appreciation is likely to be a headwind for group revenue and earnings next year.
Revenue growth is expected to improve in constant currency but remain moderate in 2026, with reported revenue increasing by mid-single digits.
The group’s net interest income should improve somewhat, given the aforementioned loan growth.
Its net interest margin is likely to compress slightly, especially as wholesale loan growth exceeds that of retail and the Africa Regions, given lower policy rates.
Non-interest income is again expected to exceed net interest income slightly, given the strong growth across CIB and Africa Regions. BB and PPG growth should improve.
Lower policy rates and improved GDP growth will also lead to a further decline in its credit loss ratio next year, bringing it to the middle of its through-the-cycle target range of 75 to 100bps.
The group expects continued improvements in its retail charge in South Africa, given the already far better early arrears at present.
These drivers should generate an RoE of roughly 16% in 2026, with the group setting an RoE target range of 16% to 19% from 2027 to 2030.
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