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Johannesburg - Over the rest of the current financial year Absa may have to write off almost R1bn worth of bad investments, analysts estimate.
ABout R800m worth of impairments are from private equity investments showing losses in the recessionary environment. About R150m will need to be written off in respect of Blue Financial Services.
Absa has already announced R220m in new impairments for the first half of the current financial year to end-June. Total new comparable write-offs could amount to R1.2bn, compared with FirstRand's R1.4bn-odd in the past financial year.
This shows that South African banks have not emerged as unscathed as generally expected from the global financial crisis and the domestic downturn.
The write-offs have been necessitated by tight market conditions. More impairments are possible for Absa. Exchange-rate losses are not part of the latest forecasts and exposure to single-stock futures amounts to R300m.
On Friday Absa announced in a trading update that the bank's headline earnings per share would be between 25% and 35% down on the previous financial year.
The most significant private equity impairment is apparently the outcome of an investment by Absa Capital in Safripol, an unlisted KwaZulu-Natal plastics manufacturer and exporter which has been negatively affected by the strong rand.
Impairments should fall
In a research not,e Deutsche Securities stated that the risk of further write-offs is increasing. Concern has also been expressed about Absa's rising costs.
For the 2009 financial year Deutsche predicts that Absa's attributable earnings will fall 39% to R6.4bn. Impairments could rise 63% to R9.5bn.
Absa will only start to recover if the bad debt book is further reduced. Deutsche is optimistic about this for the 2010 financial year and reckons impairments will then fall by 22% to R7.4bn, and in the
2011 financial year by a healthy 32% to R5bn.
In 2010 earnings are expected to improve by 37%.
Absa's weaker trading update surprised analysts. The consensus forecast was that the bank's earnings would rise by R765m in the current financial year.
On Tuesday Credit Suisse Standard Securities joined the ranks of the more pessimistic analysts, with a prediction that Absa's earnings in the current financial year would be R1bn less than forecast.
- Sake24.com
For more business news in Afrikaans, go to Sake24.com.