Credit losses to stay high in next results — Absa

Banking group Absa has warned that its credit losses will remain high in its next annual results as customers continue to grapple with elevated interest rates.

“Given significantly higher policy rates, our credit loss ratio is expected to exceed our through-the-cycle target range of 75 to 100 basis points,” the company, valued at about R143bn on the JSE, said on Friday. Absa released a voluntary trading update for its upcoming results for the year to endDecember, expected to be released on March 11.

“Our second-half credit-loss ratio is likely to improve noticeably from the elevated first half but remain above our throughthe-cycle range,” it said.

The company’s share price closed down 6.3% at R159.64 on Friday, its biggest fall in almost nine months.

Consumers and businesses are feeling the impact of higher inflation, poor economic growth and the SA Reserve Bank hiking interest rates 475 basis points since November 2021.

“We continue to expect high single-digit revenue growth in 2023, driven predominantly by net interest income, reflecting balance sheet growth and higher policy rates. We expect high single-digit growth in customer loans and deposits,” the group added.

Another trend Absa sees continuing is the strong performance from its African operations compared with SA that in its interim results, released in August, helped double its profit and counter the earnings drop in local operations.

“Geographically, we expect similar full-year earnings trends to the first-half performances, with our earnings in SA decreasing and Africa regions earnings increasing noticeably, despite applying hyperinflationary accounting in Ghana,” the group said.

In the interim results, there was an 18% decline in headline earnings from the SA operations, driven largely by a 68% jump in bad debt provisions. But the African regions helped as they delivered a third of its profit as the group reported a 2% rise in its headline earnings.