Absa: Home loans a worry

"We'll be paying our investment bankers bonuses in repossessed cars this year," joked group Chief Executive Steve Booysen.

While Booysen may have been throwing in a bit of humour at the presentation of Absa's interim results this year, his comment summed up the situation banks find themselves in.

While earnings growth from Absa's retail banking operations was down 7% year-on-year, Absa Capital lifted earnings by 32% to R1bn for the six months ended June 2008. This division contributed 21% to Absa's overall earnings in the first six months of 2008.

Absa Capital executive John Vitalo, described the performance from his business unit as "stellar" and felt that there was further room for improvement in the investment banking arm of the business.

Vitalo believed that there were many opportunities in private equity and that further synergies would be realised from the relationship with Barclays bank.

Barclays Bank became a majority shareholder in Absa in 2004.

However Absa, South Africa's biggest lender for home loans, cautioned that bad debt around housing and vehicle finance was becoming an increasing problem.

"Consumers are under siege at the moment. Debt is expensive and not freely available," said Absa group financial director Jacques Schindehutte.

Louis von Zeuner, an executive in the Absa retail banking arm, confirmed that while credit card-related delinquencies were flattening out, vehicle and asset impairments and delinquency were up sharply.

Absa management was frank with the audience saying that too much easy credit had been made available. Von Zeuner said: "It is clear that the credit granted in 2006 accounts for a big portion of the stress we are seeing in the market at the moment."

He went on to say that the biggest slump in delinquencies had occurred around March this year and they expected a tough second half to the year.

However Absa did say that they had been very successful with asking clients to scale down and convert luxury vehicle instalments into more affordable vehicles. The bank was facilitating these transactions to reduce their risk levels.

The bank believed it had made good progress around their micro-lending operations as well as plans to expand into Tanzania, Mozambique and Angola.

Booysen did however caution that the worst was not yet behind us. He said: "We believe the interest rate has peaked but with the Reserve Bank policy of inflation targeting there is some upside risk."

Shareholders were rewarded with a 10.4% improvement in the interim dividend to R2.65 per share.

Towards the end of the trading day, Absa was flat at R101.50, while competitor Standard Bank was up 0.5% on the day at R88.20. First Rand was up 1.5% at R16.10 and Nedcor was up 1.6% at R106.50.

At 17:00, the JSE financial index was up 0.2% at 6 930.59 points.

- Fin24.com