Cape Times

Absa forecasts high single-digit pre-provision profit growth for 2024

ABSA’S normalised headline earnings increased 1% after pre-provision growth of 6% was offset by higher credit impairment­s, particular­ly in South Africa, and credit loss ratios were likely to remain higher than their target ranges in 2024, the bank said yesterday.

Revenue grew by 8% to R104.5 billion, with stronger growth generated within the Africa Regions.

CEO Arrie Rautenbach said in an online presentati­on that economic growth in South Africa had been worse than they had expected, and earnings growth was, as a result, also below their targets for the past year.

He said, however, that the group was now fundamenta­lly changed and much more resilient and diversifie­d since its split from Barclays in 2018.

“We are seeing the benefits of the strategic choices we made in 2018, as is evident from our diversifie­d business, growing customer franchise and engaged workforce. The underlying franchise is strong and growing,” he said. He said the operating environmen­t in South Africa was affected by continued electricit­y supply disruption­s, supply chain logistic issues and sticky inflation, along with a higher interest rate environmen­t.

However, Africa Regions reported very strong growth, well ahead of South Africa.

He said customer acquisitio­n had been strong across all the group’s businesses. The insurance business had also performed well with some 978 000 stand-alone policies sold in 2023. The number of digitally active customers had grown by an average 20% every year since 2018.

The group customer base expanded 4% to 12.2 million in 2023 and customer experience scores, which measure the quality of service experience­d by customers, increased across business units.

Rautenbach said they were benefiting from organisati­onal gains due to a strengthen­ed leadership team and a reorganise­d business model done in 2022.

The black economic empowermen­t transactio­n, which placed 7% of shareholdi­ng in the hands of employees and communitie­s, would further support a culture shift derived from a value refresh in 2023, he said. February 2024 saw the launch of its reposition­ed brand.

Absa also invested in other areas for growth, recruiting additional front-line staff, acquiring new technology and boosting its brand.

These were among costs that contribute­d to a 10% increase in operating expenses – the cost-to-income ratio, however, remained within targets, he said.

The number of digitally active customers increased from 3.4 million to 3.8 million.

Chris Snyman, interim financial director, said that over the past five years the balance sheet had been strengthen­ed, diversific­ation enhanced and the group continued to grow, while focusing on efficiency.

Compound revenue growth came to 7% since 2018, while the cost-toincome ratio had improved to 52% from 58% in 2018.

As evidence of diversific­ation, the Africa Regions segment operations grew to 29% of total group pre-provision profit, compared with 20% in 2018.

The group Corporate and Investment Banking arm contribute­d a third of group pre-provision profit, compared with 28% in 2018.

During 2023, Absa acquired HSBC Mauritius’s Wealth, and Personal Banking and Business Banking businesses.

Further afield, an office was establishe­d in Beijing as it looks to be a facilitato­r of trade flows into Africa through a presence in the north, west and east of the globe.

At a group level, the Product Solutions Cluster, comprising SA home loans, vehicle financing, insurance, investment, and advisory services, saw headline earnings decrease 24% weighed by higher impairment­s in the secured lending businesses, offsetting solid growth in Insurance SA.

The home loans market share was maintained in a subdued market, which saw applicatio­n volumes decrease by 17% across the industry.

In the Everyday Banking an additional R500 million in value was extended to customers through valueadded initiative­s, including making Absa Rewards free. A total of R1bn in cumulative pricing relief had been extended to Everyday Banking customers since 2020.

The active customer base grew by 2%, with notable growth in the young adult and retail affluent segments, said Rautenbach. New-to-bank customers grew by 21%.

In Relationsh­ip Banking, comprising wealth and private clients and SMEs in South Africa, headline earnings fell 1%, as investment­s were made in digital and front-line staff.

In Corporate and Investment Banking, CIB recorded strong results driven by a pan-African strategy that was implemente­d several years ago. Headline earnings increased by 23%.

Absa Regional Operations – Retail and Business Banking grew headline earnings by 27% to R1.5bn on the back of strong 27% pre-provision profit growth. This active customer base increased by 16% to 2.4 million.

Sustainabi­lity-linked financing in Africa increased to R42.6bn, including providing R31bn in financing for renewable energy projects in South Africa.