Absa expects double-digit H1 revenue growth

Forecasts a rise in dividend payout ratio to 50%.
Image: Waldo Swiegers/Bloomberg

JSE-listed banking group Absa expects revenue for the six months ended 30 June 2022 to increase by more than 10%, supported by strong growth in non-interest income, as life insurance revenue picks up, and rising interest rates spur net interest income growth.

“As expected, non-interest income growth improved materially, rising by low double digits year on year. Life insurance revenue rebounded very strongly off a low base that included significant Covid-19 claims and provisions,” Absa says in a trading update for the five months ended May 2022.

Normalised headline earnings per share (Heps) for the period are expected to be more than 20% higher than those reported in the previous comparable period.

The bank further noted growth in gross customer loans, rising in the high single digits, as growth in the Corporate and Investment Banking (CIB) and Retail Business Banking (RBB) business improves.

Growth in RBB in the five-month period was driven largely by home loans and vehicle and asset finance, this is despite the bank noting a rise in credit impairments.

Looking forward, the bank says it expects its credit impairments to continue to rise year on year.

“Our credit impairments are expected to increase year on year, resulting in a credit loss ratio in the upper half of our through-the-cycle range, versus 88 basis points in the first half of 2021,” Absa says.

“Given the uncertain macroeconomic outlook, our loan coverage remains strong, with conservative forward-looking provisions.”

The bank expects to increase its dividend payout ratio to 50% in the period, higher than the 30% reported in the first half of 2021.

Read: Sarb hikes repo rate by 50bps

Rising operational costs

Absa says it expects a rise in operating expenses for the half-year reporting period of nearly 10%.

“Operating expenses are expected to increase by high single digits year on year, reflecting performance costs, plus continued growth in marketing and technology investments,” the bank says.

Last week, the bank announced plans to migrate its branches from the national grid to solar power, a move that will help it beat the country’s persisting energy supply crisis. The bank will begin its rollout of this plan at its Wilkoppies branch in Klerksdorp, North West, with intentions to roll out to the rest of its branches countrywide.

Read: Tycoon Motsepe plans to boost clean power generation seven fold

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