Absa’s strategic choices pay off as banking giant reports headline earnings of R11bn

15 Aug 2022

Group Chief Executive Officer Arrie Rautenbach said the strong results reaffirm the strategic choices made in 2018, when Absa reiterated its goal of doubling its market share in Africa to 18%.

The first half of the year has seen a strong recovery from banking giant Absa as the group posted a 27% increase in headline earnings to R11-billion for the six months to June.

Group Chief Executive Officer Arrie Rautenbach said the strong results reaffirm the strategic choices made in 2018, when Absa reiterated its goal of doubling its market share in Africa to 18%.

“With a strong, experienced leadership team and an improved operating model, we now have a strong foundation for outperformance,” he said.

Earlier this year, the bank announced a strengthened board and a more diverse executive leadership team. All business units reported improved earnings and stronger returns during the first half.

Jason Quinn, Absa Group’s financial director, says the group strategy has ensured that the bank remains capital-generative and appropriately provisioned for a tougher environment.

Costs were well maintained even as Absa increased investment in IT for enhanced digital performance and improved customer experience. Total IT spend grew by 11% to R6-billion, while the bank’s digitally active customers grew by 10% to 2.2 million in retail and business banking in South Africa. Digital volumes have grown by 86% compared with 2019 levels, while branch and ATM volumes have declined substantially.

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In the retail and business banking unit, which is Absa’s largest revenue generator, key performance indicators continued to trend positively and in line with expectations, benefitting from deliberate execution over the past three years. Home loan registrations, vehicle asset financing and personal loans increased. Absa gained market share in key areas in retail advances, including home loans and vehicle asset financing, and deposit market share is strong at 22%. Customer numbers increased by 1% to 9.6 million.

The corporate and investment banking division saw revenue grow by 7% on the back of growth in the client franchise. During the period under review, Absa provided R10-million worth of assistance to those affected by the KwaZulu-Natal floods and waived excess fees on insurance claims.

The largest funder of renewable energy in South Africa, the bank continues to make progress on its sustainability agenda. By January this year, Absa had financed 33 deals, or 46% of South Africa’s renewables projects. While the group’s fossil fuel exposure is set to decline, Absa is looking to double its renewable energy loans as a percentage of total group loans by 2030.

Looking ahead, Rautenbach says there are considerably higher inflationary pressures across most of the markets in which Absa operates and policy rates are increasing faster than expected.

“We pre-empted the cycle, with more caution on the unsecured lending side, although we are seeing an increase in that book, going forward. We stress affordability before the rate cycle starts going up, so we are comfortable with our risk appetite,” he says.

Absa expects to achieve low double-digit revenue growth in 2022. Operating expenses will probably increase by low to mid-single digits, with preprovision profit growth in the teens, resulting in a cost-to-income ratio that is expected to be lower than 2021 levels. DM/BM

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