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Johannesburg - Banking and financial services group Absa reported on Monday that its banking division had recorded a dip in diluted headline earnings per share of 1.9% to 2 175.2c for year ended December 31. By contrast, the group recorded growth in diluted headline earnings per share of 7.3% to 1 412.1c.
The group's dividend for the year improved by 6.3% to 595c a share. A final dividend of 330c per share was declared.
Despite highlighting risks to the domestic economy, Absa said organic growth for the group is not expected to be constrained by prevailing market conditions, as it currently generates sufficient capital from its operations to fund growth.
"Given the deterioration in the credit environment, the group is cognisant of the effect of pro-cyclicality introduced by Basel II and will continue to focus on maintaining appropriate levels of capital. The group has, therefore, increased the target capital adequacy ratios for 2009 to 10% (from 8.8%) for Tier I capital and 13% (from 12%) for the total capital adequacy ratio. These ratios have already been achieved," it added.
The group said its asset base as at December 31 2008 increased by 20.7% to R773.8bn, largely attributed to growth in loans and advances to customers (which constitute 68.8% of total assets), trading and derivative assets and statutory liquid assets.
Net interest income at the banking division lifted 13% to R20.239bn, but an impairment loss on loans and advances of R5.627bn was recorded from the R2.207bn seen in 2007.
Net fee and commission income at the bank improved by 15.4% to R11.720bn, but operating expenditure was shown up 11% to minus R19.196bn. Net interest income for the group increased by 15.4% to R21.795bn, mainly as a result of growth in total advances.
The group showed loans and advances to customers increasing by 16.7% to R532.2bn compared with R455.9bn in December 2007, as a result of increasing retail and commercial business.
While the group recorded an 11.3% increase in retail advances, it said there was a slowdown in the growth rate in line with the challenging macroeconomic environment and the tightening of credit criteria.
Retail mortgages increased by 12.2%, while cheque account and retail instalment finance rose by 8.7% and 1.4% respectively. Credit card advances recorded a strong increase of 41.1%, due to the acquisition of the Woolworths Financial Services (Proprietary) Limited (WFS) book on October 1 2008. However, credit card advances, excluding the WFS book, grew 8.6% year-on-year.
Absa Capital, meanwhile, was shown to have increased attributable earnings by 29.8% to R2.249bn from R1.733bn in 2007.
The company said the focus going forward would remain on cost control, the further tightening of credit criteria and maintaining strong credit quality at the right price.
The group expects business volumes, particularly in the retail bank, to decline and arrears and non-performing loans to increase. Margins are expected to remain under pressure due to the continued higher cost of funding.
In addition, the group will no longer benefit from the positive endowment effect on capital as the interest rate cycle eases.
"Given the challenging conditions that lie ahead, Absa will continue to implement comprehensive measures to protect future earnings. The group remains well capitalised and has a strong balance sheet enabling it to take advantage of growth opportunities as and when they arise. The continuing efforts to diversify the group's earnings base should underpin future financial performance.
"In particular, growth in the investment and commercial banking businesses should remain positive, thereby mitigating some of the slowdown in the retail business. The group remains committed to managing risk, preserving capital and maintaining current levels of profitability for the year ahead," concluded the company in a statement.
- I-Net Bridge
