Johannesburg – Absa Group [JSE:ASA] is on track to meet the needs of its clients in changing economic conditions. Its management team is skilled and strong enough to keep the bank on course.
That was chief executive Maria Ramos’s message to critics at the announcement of the bank’s interim results on Friday.
A flood of bad news concerning Absa over the past four weeks had critics on the back foot – and everything possible was blamed for it.
There were suggestions that the departure of senior members of management had left a vacuum and resulted in problems in the loan book having being missed, to the bank having deliberately inflated its previous financial year’s earnings to benefit its controlling company, Barclays.
Ramos denied that a vacuum in the management corps was the cause of a 40% rise in the provision for non-recoverable debt, which in turn resulted in a 6% decline in its earnings for the six months to end-June.
Despite a couple of sensational resignations, she said, the executive committee remained strong. The committee consists of skilled people drawn from other banks and from within Absa itself.
“The people are strong, have the necessary expertise and can keep the bank on track in the volatile conditions.”
Moreover, Ramos said, Louis von Zeuner, former deputy CEO, would be filled with horror if he felt that his leaving had left a vacuum in the management team.
And to the criticism that the events of the past four weeks indicated that Ramos was not capable of steering the ship, a senior executive called that nonsense.
Financial director David Hodnett’s response to allegations of inflated profits at the end of the previous financial year is an unequivocal “no”.
“Were profits at the end of the 2011 financial year exaggerated? No,” he said on Friday.
The group is certainly disappointed with the results, but unapologetic about the 40% increase (to R40.2bn) in provision for bad debt.
The bad debt increase arises mainly from an increase in non-recoverable debt on its loan book and especially home loans to people undergoing debt counselling.
People who together owe R6bn of the R10bn of non-recoverable mortgage loans are undergoing debt counselling. It could take up to two years before the bank knows whether it will be able to recover any of this money at all.
The problem was less obvious at the end of the previous financial year than it is now. In an interview with Sake24 on Friday Ramos said that in April and May the bank became aware of the sharp increase in home loan arrears.
Instead of doing the write-offs as usual on the basis of the historical figures of the past 24 months, the bank decided to effect these write-offs in the period under review.
“These once-off write-offs had a negative impact and the results are naturally disappointing because they obscures the good quality of the income and the loan book, the increase in new clients and a healthy rise in deposits,” said Hodnett.
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