JOHANNESBURG (Reuters) -South Africa’s Absa Group posted a 5% decline in half-year profit on Monday as operating expenses rose faster than revenue but flagged a moderation in cost growth in the second half and a slight improvement in credit loss levels.
Inflationary pressure, high interest rates, regular power blackouts and logistical bottlenecks are taking a toll on South African banks’ most sensitive retail and small business customers.
Absa posted diluted headline earnings per share of 1,228.4 cents for the six months ended June 30, down from 1,293.1 cents in the corresponding period a year earlier.
Operating expenses rose 8% to 28.3 billion rand ($1.59 billion). But revenue grew just 3% to 53.7 billion rand as net interest income – the difference between that amount banks earn from loans and pay on deposits – rose by 7% to 35.3 billion rand and non-interest income fell 2%.
Net loans and advances grew by 4% or 6% in constant currency terms, to 1.3 trillion rand, while credit impairment charges were flat, producing a credit loss ratio of 123 basis points (bps) from 127 bps, still outside its target range.
A credit loss ratio is a measure of bad loans versus total loans.
Absa’s customers remained in distress in the first half, but early delinquencies have improved significantly, Group Financial Director Deon Raju said on a call with media.
“We have seen even more affluent customers demand credit which tells you that they’ve depleted savings and more broadly affordability levels in the first half were certainly under pressure,” Raju said.
“With interest rate cuts on our horizon we do see some of that pressure being relieved.”
The lender said it expects mid-single digit growth in both revenue and operating expenses for the full year, to give a similar cost-to-income ratio to 2023’s 53.2%.
($1 = 17.8119 rand)
(Reporting by Nqobile Dludla; Editing by Himani Sarkar, Kirsten Donovan)
