A financial service provider in Africa, Absa Group Limited, has resumed dividend payments as the economic effects of the coronavirus (COVID-19) pandemic eased in the first half of 2021 compared with the same period a year earlier.
This is after reporting an increase in interim earnings.
Group headline earnings grew five-fold to R8.6 billion, which is higher than pre-pandemic levels, supported by resilient pre-provision profit growth and a significant decline in impairments.
While earnings increased strongly, the improvement is off a low base a year earlier.
The Interim Group Chief Executive of Absa, Mr Jason Quinn, who made this known at a virtual event to announce the firm’s 2021 Financial Results on Monday, August 16, observed that Absa generates most of its income from its operations in South Africa.
“These results are testimony to the decisions that we took during the crisis around supporting our customers and taking a cautious approach to preserving capital and liquidity.
“Absa’s response to the pandemic and more recent incidents in South Africa has continued to be comprehensive, compassionate and reflective of the best of Absa’s values,” he said.
The Group further strengthened its capital reserves during the period and maintained a strong liquidity position in the first half.
“Pleasingly, our headline earnings exceeded pre-COVID levels and our common equity tier one capital ratio strengthened further to the top end of our target range.
“The Group’s balance sheet remains resilient and returns are now above cost of equity,” the Absa Group Interim Financial Director, Punki Modise, said.
The recovery was broad-based as all business units reported strong growth from a low base in the prior year.
Retail and Business Banking (RBB), which generates most of the Group’s income, grew headline earnings eight-fold to R4.2 billion.
The benefit of a lower impairment charge was partially eroded by a 15 per cent decline in pre-provision profit, given high claims and reserving in the life insurance business and customer-centric fee reductions.
RBB has invested heavily in digital and has made considerable progress in this area, including launching Apple Pay recently.
Corporate and Investment Banking (CIB)’s headline earnings more than doubled to R4 billion, driven by solid growth across the franchise, most notably in the Global Markets business and the Investment Bank.
This helped to offset low credit appetite from corporate clients.
The Group refined its operating model after an internal and external review found that the Group structure was sub-optimal relative to its growth ambitions and the scale of the opportunity across the continent.
Absa continued to play a role in society this year, building on last year’s substantial efforts to support customers, staff, communities and stakeholders in difficult times.
Absa foresees a number of risks to the Group’s growth forecasts in the remainder of the year and recognizes that the impact of COVID-19 remains a significant uncertainty.
Absa currently expects the South African economy to grow four per cent this year from last year’s seven per cent decline, a slightly improved outlook compared with the three per cent growth forecast in March.
“We are now confident, in hindsight, and considering the improvements in our financial momentum, that most of the key strategic calls made in 2018 were good decisions, which have been delivered against and which remain very relevant today,” Mr Quinn added.