South African lender Absa said on Tuesday it expected its first-half profits to fall by more than 20%, with the impact of the coronavirus outbreak already causing bad debts to double.
Absa, one of South Africa’s big four banks and previously owned by Barclays, has been on a drive to win back market share lost under its former parent, including by increasing lending.
That strategy was just starting to gain traction when the pandemic hit, dealing a substantial blow to performance in the first four months of the year, mainly in April, Absa said.
Its headline earnings per share – the main profit measure in South Africa – would likely be at least 20% lower in the six months to June 30 than the 920 cents it reported in the same period last year, it said, adding it would give more specific guidance at a later date.
“We are reviewing the group’s medium-term financial targets and will update the market when there is greater certainty in the macroeconomic outlook,” it continued, adding a dividend for 2020 was unlikely.
Credit impairments had doubled during the first four months of the year, the bank said, with its credit loss ratio similar to the 1.7% it saw during the financial crisis in 2009.
Absa forecast its return on equity would decline substantially in 2020 from 15.8% last year.
It added, however, that while its common equity tier one capital ratio – a key measure of financial strength – may fall below its target range of 11-12%, stress testing suggested it would remain well above regulatory requirements.
Absa’s shares, which initially lost earlier gains following the announcement, were back up 2.27% by 1217 GMT.
Read the full Sens announcement here.