Absa rivals to escape its debt woes

2012-07-06 15:04

Johannesburg - South Africa's big lenders such as Standard Bank are unlikely to be hit by the spike in bad debts that has plagued rival Absa Group, thanks to their more prudent loan provisions.

Absa, South Africa's third-largest bank and a unit of Britain's Barclays, shocked the market last week when it warned first-half earnings would likely drop by as much as 10% on rising bad debts from mortgages.

The news exposed the fragility of Absa's recovery. Like other South African banks, the lender has been on the mend from a bad debt hangover in 2009. Nervous investors have sent the shares into a tailspin since the warning, wiping $1.8bn off its market value.

But rivals Standard Bank, FirstRand and Nedbank are not expected to suffer the same fate, and their shares have changed little compared with a 13% drop in Absa's shares since the warning.

"It seems to be an Absa-specific issue," said Patrice Rassou, head of equities at Sanlam Investment Management.

"The other three will definitely buck the trend and will have very strong growth."

Absa may have been premature in scaling back its provisions for non-performing mortgages. It cut its cover for non-performing mortgages to 17.1% in December from 19.1%, the lowest among its rivals.

That freed up some cash to help pay for a hefty 50% hike of its 2011 dividend, much of that going to majority shareholder Barclays.

"In December, everyone was dropping provisions as the situations looked like improving. There were assumptions about the economy and debtors getting better," Rassou said.

Other banks have been "reasonably conservative" in their provisioning, however, said Ron Klipin, a portfolio manager at SA Stockbrokers.

"If you look at Nedbank numbers, they seem to have cleared most of the cobwebs out of the cupboard, they made major provisions before as did Standard Bank."

Absa has also struggled to post signs of real growth. Its 21% profit growth last year was largely due to a sharp drop in bad debts. Even as its rivals were reporting solid loan expansion, Absa scaled back its loan book.

Top African lender Standard Bank, which is due to report half-year results in August, is expected to grow earnings by about 14% this year, according to a poll of 16 analysts by Thomson Reuters.

Nedbank, the smallest of South Africa's big four banks, is seen posting 18% growth this year, according to a poll of 17 analysts. Nedbank is also due to report half-year results next month.

Absa is the earliest to report its results, on July 27.

For all four banks, a key point will be how much they set aside for bad loans, said Nondas Nicolaides, a senior analyst at rating agency Moody's.

"Whether the bottom line or the profitability will increase significantly for each bank is difficult to tell right now," he said.

"As is the case for Absa, it will very much depend on the extent of impairments they will have to take against their loan books."

  • des.cider - 2012-07-06 16:55

    So now we know! ABSA has been currying favour in the less financially reliable communities of our land and now has real debt problems. To boot, ABSA’ s delinquent and corrupt parent is bleeding it dry. Now we know why ABSA customers pay so much in fees for so little in service. Today, tomorrow??, together?????. I think not, ABSA. I’m off elsewhere too!

      Arthur Salvado - 2012-07-08 07:58

      Just walk into any Absa bank in you start getting the picture. I'm off after 28 years. Cheers and you've killed any fond memories of a bank that did work but no more

  • johanvvuuren - 2012-07-06 17:09

    My loans are with ABSA and my savings with FNB.

      des.cider - 2012-07-06 22:00

      Your debt will be the first thing they come for…and they will send in the heavies to retrieve the capital and interest outstanding to that day! Your capital will be repaid in terms of a minority share of residuals and you will spend your remaining life in court trying to get cash and/ or shares in a new venture destined to pay you out after your demise!

  • hugh.robinson.56 - 2012-07-06 17:30

    If ABSA would not have been so Pigassed about a loan made to a family member they would have been paid in full by self. All that was required that they tell me the exact amount they required. They refused because I did not have power of attorney. The result was they lost out on a more than substancial sum as the person decided to live permanently elsewhere. Hugely Funny thing is they still phone begging for the money or information but then refuse to tell me the exact amount. This is when dogged rules come back to bite you on the bum ABSA.

  • Eddy - 2012-07-06 17:48

    All banks are more or less the same. ABSA is just as good as any other and better in other ways. Enough to change to another Bank? No. At least they are everywhere. Not only in SA,s small towns , but African countries and overseas through Barclays.

  • Nukki - 2012-07-06 21:41

    Im glad I just switched to CAPITEC!!!

      Eddy - 2012-07-07 00:13

      And CAPITEC is where? Who the hell has heard of them? Are they from Pofadder?

      Gabby - 2012-07-07 10:46

      If any of the banks where to go down first it would be capitec, they specialize in unsecured lending, at least the other banks have properties and vehicles to take back if the debtor fails to repay

  • lynette.csongradi - 2012-07-07 11:33

    Ja well! ABSA also said to the world that they not retrenching anyone.........people were retrenched! I take everything ABSA says with a pinch of salt from now on!

  • faizieishlah.shabalala - 2012-07-07 11:46

    Barclays is an asset stripper. Dont forget the ABSA bosses shared in the dividend payout. Not a share I would buy

  • Chikane - 2012-07-08 06:48

    To hell with Barclays, more interestingly is what Maria Ramos has done to her glittering CV, Transnet was doing a good job and she took accolades and credit, now, this is an acid test on her captaincy skills and competencies. I wish I can hear their bedroom talk with ANC Presidency boss Mr Trevor Manuel!

  • enlightened.bowman - 2012-07-08 07:23

    I wonder if this may have something to do with their employment status. I believe they switched off the light.

  • handswell.mathebula - 2012-07-20 09:42

    Thats they way Maria Ramos operate,people always loss thier jobs. She came to transnet and intorduce a smart project and people did loss thier jobs and her reasoning was skill development.She sold transnet properties and now Pipelines(transnet division) is strugling to expand because of her decision and people with skills are gone.I feeel sorry for Absa employees who are still gone be retrech.

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