Good times for Absa

In a voluntary trading update for the first half of 2025, Absa said the global economic environment remains uncertain and volatile.

This comes amidst increased trade tensions and other major geopolitical developments, reducing growth expectations.

Across its presence markets, lower inflation also resulted in policy rate cuts in most countries. GDP growth expectations for 2025 also declined in all countries it operates, except Ghana.

Contrary to expectations, the average exchange rates in its African regions did not depreciate against the Rand and have not been a drag on the group during the first half of 2025.

Against this backdrop, the group expects mid-single-digit revenue growth, with higher growth in non-interest income than net interest income.

Continuing in the second half of 2024 trend, net interest income growth is expected to be muted given the mid-single digit loan growth and some margin compression, especially in South Africa.

The group expects high single-digit non-interest income growth, with strong trading revenue, mid-single digit growth in net fee and commission income and modest net insurance income growth.

It expects mid-single digit operating expense growth, producing low- to mid-single digit growth in pre-provision profit and a slightly higher cost-to-income ratio than the 52.7% in the first half of 2024.

The group’s credit loss ratio is also expected to improve noticeably to around the top end of its through-the-cycle range of 75 to 100 basis points, reducing from 123 basis points in 1H24.

The group thus expects mid-teen earnings growth in the first half of 2025, while its RoE should improve from 14.0% in 1H24 to roughly 14.8%.

The bank’s Common Equity Tier 1 ratio is expected to finish the first half of 2025 around the top end of the board’s target range of 11.0% to 12.5%, with the group planning to maintain a dividend of 55%.

South Africa drives earnings growth

Absa said South Africa is expected to drive its earnings growth, mostly due to lower credit impairments, since net interest income growth remains muted.

On the other hand, it expects strong pre-provision profit growth in African regions, partially offset by higher credit impairments.

From a divisional perspective, the group expects strong earnings growth from its reorganised Personal and Private Banking.

This was driven by lower credit impairments, while revenue growth remains muted amid modest loan growth and our risk appetite reduction in personal loans.

In Business Banking, low revenue growth and a higher credit loss ratio are also expected to reduce earnings.

It expects Corporate and Investment Banking to benefit from lower credit losses and substantial trading revenue, while net interest income growth remains muted.

Absa Regional Operations Retail and Business Banking are maintaining solid revenue and pre-provision profit growth, with growth in active customers and fee income offsetting higher credit impairments.

The group also expects a substantially reduced loss in Head Office, Treasury and other operations.

This comes from several drives, such as asset and liability management optimisation initiatives, and no longer using hyperinflationary accounting at Absa Bank Ghana.

More precise figures will be released in the group’s interim results for the first six months of the year, due on 18 August 2025. 

Issued on BusinessTech by Luke Fraser | https://businesstech.co.za/news/banking/829690/good-times-for-absa/