Johannesburg - If results from Absa, South Africa’s biggest
bank according to the number of its clients, are an indication of what lies
ahead, investors can again look forward to good news for the banking sector.
Absa’s final dividend of R3.92/share is 70% more than in the
corresponding period last year, and it brings the total dividend for the year
to R6.84.
Headline earnings were 21% up - to R9.7bn. The 33% increase
in retail earnings was the major driver of this growth.
Next, FirstRand [JSE:FSR] will announce its results for the
six months to December on February 28, with Nedbank following.
Earlier in the week Nedbank Group [JSE:NED] said it expected
its earnings to be 23% to 28% higher for the financial year to December 31.
Absa Group [JSE:ASA] says an improvement in non-interest
income, lower bad debts and improved cost control were among the main reasons
for its earnings growth. These factors had had more of an impact than the
decline in loans and advances.
Loans and advances were 1% down for the year.
Home loans fell by 4%, but financial director David Hodnett
says the focus is on good returns rather than market share.
Households and businesses are getting rid of debt and still
trying to avoid risk, suppressing the demand for credit.
Deputy group chief executive Louis von Zeuner says although
a decline in bad debts in his retail operations made a great contribution,
growth was very good if one discounts bad debts.
Absa’s non-performing loans as a percentage of loans and
advances declined from 7.6% to 6.9%, but Von Zeuner says they want to see it
come down to between 5% and 6%.
He says that although consumers are not taking up more
credit, consumer confidence does seem to have improved.
Consumers’ cash flows look better and they are attempting to
pay down their debt.
In an environment of low interest rates and muted demand for
credit, Absa, like the rest of the banks, is looking to non-interest revenue
and the unsecured market to boost earnings.
Absa says its non-interest revenue, mostly consisting of
high-quality income driven by clients, is 10% up.
All South African banks have aggressively entered the
unsecured market in the past couple of years, but Von Zeuner says they are
cautious in view of the market’s aggressive growth.
Analysts believe a credit bubble could arise in the market
and the risk is high, but Von Zeuner says the large majority of personal loans
are with existing clients, which reduces the risk.
Ramos says this year will put slightly higher inflationary
pressure on households’ real income and the labour market is expected to remain
weak.
This points to a still-vulnerable consumer, with companies
making cautious business decisions.
Ramos says against the background of a fragile macroeconomic
environment income growth will remain muted.
Cost control remains a priority for the company and
management will again this year keep cost growth below turnover growth.
- Sake24
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