Absa Group posts robust results
Absa Group reported strong normalised headline earnings of R21 billion ($1.1bn) for the 2022 financial year.
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This represents an increase of 13 per cent from the prior year and well above pre-COVID-19 levels. The result was driven by significantly higher pre-provision profit which, in turn, was driven by very strong revenue growth of 15 per cent to just under R100 billion ($5.4bn).
Strong pre-provision profit growth was tempered by a 61 per cent increase in impairments reflecting the impact of higher interest rates and inflationary pressures in South Africa and significant Ghana sovereign debt related impairments.
A release issued by the bank said customer base grew through improved product offerings and enhanced digital platforms.
In South Africa, Absa’s largest market, the release said the number of customers increased to 9.7 million from 9.6 million, with digitally active customers increasing 10 per cent as stability improved and functionality was enriched.
Key metrics including return on equity and cost-to-income ratio, it said, continued to improve as the group continues to deliver against its growth strategy adopted in 2018 and which was refreshed last year.
The group capital position remains above the board approved target range and the Common Equity Tier One ratio was strong at 12.8 per cent. The group loan coverage ratio of 3.9 per cent remains robust and well above the pre-COVID-19 position.
Business unit performance
The group refined its operating model, with effect from July 1, 2022, as part of its journey to enhance market competitiveness, while also improving its transformation position.
In essence, the release said the group has moved from two commercial businesses - Corporate and Investment Banking (CIB) Pan-Africa and Retail and Business Banking (RBB) Pan-Africa - to five business units.
Product Solutions Cluster - Headline earnings increased by 26 per cent to R3.5 billion ($190m), driven by the recovery in the insurance business, while the lending businesses-maintained balance sheet growth momentum, notwithstanding the impact of the weaker macro environment and supply chain challenges.
Rising interest rates and higher inflation, plus the non-recurrence of 2021 model enhancements benefits saw the impairment charge increase year-on-year.
The outlook for the global, regional and domestic environment remains unusually uncertain. For South Africa, Absa expects the economy to grow by less than one per cent in 2023. Electricity supply is expected to remain a significant risk for the economy for the foreseeable future. Absa forecasts 4.4 per cent GDP-weighted economic growth for the ARO presence countries in 2023.
Based on the current assumptions, Absa expects solid revenue growth and credit losses at the top end of its target range, given higher rates and inflationary pressures. Absa expects return on equity of around 17 per cent.
“Our consistent strategy execution produced strong results in 2022,” Absa Group Chief Executive Officer, Arrie Rautenbach, said.
“We believe in our strategy, and we have momentum behind us. Along with a stable and experienced leadership team, I am confident that we will be able to sustainably achieve our targets,” he said.
“We are conscious that the macro environment is tough and it is expected to get tougher but we have a well-positioned and resilient balance sheet to withstand it,” Rautenbach said.
“We are building a strong and consistent track record of delivery against our strategy and we are well positioned for growth, notwithstanding the more difficult operating environment,” Absa Group Financial Director Jason Quinn said.