30 July 2013

Absa Group reports 8% increase in HEPS; sets out investment in revenue growth.

Absa Group today reported an 8% increase in headline earnings to R4 663 million from R4 313 million and improved its return on average equity (RoE) to 14,0% from 13,7%. The financial services group declared a special ordinary dividend of 708 cents per share and increased its interim ordinary dividend by 11% to 350 cents per share.

Key drivers of the results

  • Retail and Business Banking’s headline earnings increased 48%, due to lower credit impairments and continued cost containment.
  • Financial Services’ headline earnings increased 5%.
  • Maintained strong liquidity position, growing deposits due to customers 7% or by R32 billion to R490 billion.

Maria Ramos, Group Chief Executive of Absa and CEO of Barclays Africa, said: “We made a number of undertakings to the market for 2013 that we have delivered on. Specifically, we have announced a momentous milestone having concluded our transformational Barclays Africa acquisition, while also returning surplus capital to shareholders through a special dividend. In addition, we said we would focus on efficiency. Our well-contained cost base in the first half of 2013 demonstrates our sustainable efficiency drive.”

Good progress

We have made good progress in improving our credit quality after last year’s elevated impairments. On a like-for-like basis, our first half charge for 2013 dropped 24% or by R1 billion and did so while we improved our non-performing loan cover noticeably to 39%.

Although our credit loss ratio has increased in our unsecured retail books, the rise was off a low base and is in line with our expectations. We have maintained our loan momentum in selective areas, having restored our loan production in the second half of last year. Crucially, we did not increase our overall credit risk appetite to improve our loan growth.

We also committed to improving our top-line growth this year, which came in at a modest 3% and remains challenging in a less supportive macro environment than we expected. We have made solid headway from a revenue growth perspective in: life insurance and investments; corporate and investment banking; merchant income in retail banking; and electronic banking for business clients.

Clear strategy

It is important to note that in order to improve our revenue growth, we will be increasing our investment spend, while balancing this with cost reduction initiatives elsewhere.

In particular, Retail and Business Banking is implementing a clear strategy to improve its growth over the next three years. We have regained traction on the lending front and slowed customer attrition by launching our Value Bundles and Rewards programme in the past year.

However, our transactional banking franchise is taking longer to regain momentum than expected. In response, we are improving our products, pricing and processes, to give customers a fundamentally better experience.

We will work closely with the Barclays teams in the UK and the US to accelerate our product and customer service innovation. Increasing our alignment with Barclays has allowed us to launch innovations such as our banking app, Pingit and tap-‘n-go cards, at a low cost.

Refresh branch network

We are also refreshing and repositioning our physical and digital channels. We have re-engineered our core customer processes and launched the first of our new branches in Hyde Park in Johannesburg last month. We will roll out 35 of these in South Africa and 25 in the rest of Africa by year-end. We plan to invest R1,2 billion by 2015 to refresh our branch network and will also strengthen our ATM network in South Africa, which is the largest in the country.

Says Ramos: “While the operating environment remains tough and revenue growth is still challenging, cost containment remains on track and credit quality has improved. The completed Barclays Africa deal will provide access to markets with robust growth and positions us to seize opportunities in Africa. We remain on course to build momentum by investing in revenue growth.”

Challenging macro-economic environment

Looking ahead, we are operating in a challenging macro-economic environment, particularly in South Africa, where we expect moderate GDP growth of about 2% this year and 3% next year. However, we see stronger growth in the rest of Africa, with over 5% GDP growth in Sub-Saharan Africa this year.

“Africa is important to the group, as one in three of Barclays employees works in Africa and we are the group’s largest region after the UK and US, contributing 11% of Barclays first half 2013 profit before tax. We are well positioned to win in Africa, by leveraging this strong platform and Barclays global resources. I have every confidence that we have the right strategy and the right team to become Africa’s ‘Go-To’ bank,” concludes Ramos.