Financial services provider Absa Group, on Monday (16 August), reported an increase in interim earnings and resumed dividend payments as the economic effects of the pandemic eased in the first half of 2021 compared with the same period a year earlier.
Group headline earnings grew five-fold to R8.6 billion, which is higher than pre-pandemic levels, supported by resilient pre-provision profit growth and a significant decline in impairments. While earnings increased strongly, the improvement is off a low base a year earlier, the bank stressed.
Absa generates most of its income from its operations in South Africa.
“These results are testimony to the decisions that we took during the crisis around supporting our customers and taking a cautious approach to preserving capital and liquidity,” said Jason Quinn, Absa interim group chief executive.
“Pleasingly, our headline earnings exceeded pre-Covid levels and our common equity tier 1 capital ratio strengthened further to the top end of our target range,” said interim financial director Punki Modise. “The group’s balance sheet remains resilient and returns are now above cost of equity.”
The recovery was broad-based as all business units reported strong growth from a low base in the prior year. Retail and Business Banking (RBB), which generates most of the group’s income, grew headline earnings eight-fold to R4.2 billion, the bank said.
The benefit of a lower impairment charge was partially eroded by a 15% decline in pre-provision profit, given high claims and reserving in the life insurance business and customer-centric fee reductions. RBB has invested heavily in digital and has made considerable progress in this area, including launching Apple Pay recently, Absa said.
“We started 2021 better than we expected, and we are gaining momentum, especially in our new business production. Our success lies in collaboration and digital innovation.”
Corporate and Investment Banking (CIB)’s headline earnings more than doubled to R4 billion, driven by solid growth across the franchise, most notably in the global markets business and the investment bank. This helped to offset low credit appetite from corporate clients.
Absa Group raised $500 million (R7 billion) in a landmark offshore Additional Tier 1 (‘AT1’) hybrid Capital bond issuance.
Secured Africa’s first certified green loan ($150 million) to strengthen our position as a renewable finance leader in South Africa, support economic recovery and provide support to the country’s power sector.
Introduced a highly advanced and secure facial recognition capability that enables convenient, safe and secure transacting on the Absa Banking App.
Absa said it foresees a number of risks to the group’s growth forecasts in the remainder of the year and recognizes that the impact of Covid-19 remains a significant uncertainty.
The bank expects the South African economy to grow 4% this year from last year’s 7% decline, a slightly improved outlook compared with the 3% growth forecast in March.
“We are now confident, in hindsight, and considering the improvements in our financial momentum, that most of the key strategic calls made in 2018 were good decisions, which have been delivering against and which and remain very relevant today,” said Quinn.
“It’s also clear that much opportunity still remains and the management team has a strong sense of urgency around re-anchoring and refreshing our strategy against the latest market context and executing against our priorities including making further and deliberate progress on our culture journey.”
Article written by: Businesstech
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