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Absa Group anticipates mid-teens earnings growth for the first half of 2025
Absa's management said its South Africa operations were expected to drive group earnings growth in the six months to June 30, 2025, mostly due to lower credit impairments as net interest income growth is muted. Strong pre-provision profit growth in Africa regions was anticipated, partially offset by higher credit impairments.
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ABSA Group said on Friday it expected earnings to grow by the mid-teens in the six months to June 30, while its return on equity would likely improve to 14.6% from 14% in the first half a year ago.
ABSA's share price climbed 2.87% to R175.85 in the afternoon, well ahead of the JSE Banks Index, which was up 1.19% at the same time, and over 10% higher than the bank's share price a year ago.
The lender's management said in a trading update that they anticipate mid-single-digit revenue growth in the first half, with higher growth in non-interest income compared to net interest income.
Geographically, its South Africa business was expected to drive group earnings growth, primarily due to lower credit impairments, as net interest income growth remains muted. Strong pre-provision profit growth in African regions was anticipated, partially offset by higher credit impairments.
Continuing the trend from the second half of 2024, group net interest income growth was expected to be muted, given mid-single-digit loan growth and some margin compression, particularly in South Africa.
High single-digit non-interest income growth was expected, with strong trading revenue. Net fee and commission income growth was anticipated to be in the mid-single digits, while net insurance income growth was likely to be modest.
Operating expenses growth is expected to be in the mid-single digits, producing low to mid-single-digit pre-provision profit growth, and a slightly higher cost-to-income ratio than 52.7% in the first half of 2024.
The credit loss ratio is expected to improve to around the top end of the bank's target range of 75 to 100 basis points, down from 123 basis points in the first half of 2024.
The bank's management said the global economic environment remains uncertain and volatile, with increased trade tensions and geopolitical developments reducing growth expectations.
'Across our presence markets, lower inflation has resulted in policy rate cuts in most countries. GDP growth expectations for 2025 have declined in all our countries besides Ghana. Contrary to our expectation, average exchange rates in our African regions did not depreciate against the Rand and has not been a drag on group earnings during 1H25.'
From a divisional perspective, strong earnings growth was expected from the re-organised Personal and Private Banking, driven by lower credit impairments, while revenue growth remains muted due to modest industry loan growth and a reduction in our risk appetite for personal loans.
In Business Banking, low revenue growth and a higher credit loss ratio was expected to reduce earnings. Corporate and Investment Banking was anticipated to benefit from lower credit losses and strong trading revenue, while net interest income growth remains muted.
