South African lender Absa reported an almost threefold rise in its annual profit and a significant rebound in return on equity (ROE) on Monday, as the economy gradually recovered from the pandemic fallout.
Like most South African lenders, a massive decline in bad debt charges prompted by the Covid-19 health crisis has driven a rebound in Absa’s performance.
Credit impairments slumped 59% at Absa to just under R8.5 billion ($564.64 million), and the bank even released R1.24 billion in provisions it had built to cover potential bad debts as its economic assumptions improved.
“Economic recovery progressed more rapidly than expected,” Absa said of its home market economy, adding this occurred notwithstanding problems from repeated power outages and civil unrest.
The bank’s headline earnings per share (Heps) – the main profit measure in South Africa – stood at 2147.1 cents for the year ended December 31, compared with 730.9 cents a year earlier and at the lower end of its forecast range.
On a normalised basis, accounting for the impact of its separation from former parent Britain’s Barclays, Heps stood at 2,197 cents.
The ROE – a key measure of bank profitability, which collapsed for most lenders during the pandemic – stood at 14.6%, up from 5.2% last year. The lender said it was targeting an ROE of more than 17% by 2024.
The lender said it expects its ROE to remain flat next year, with its credit loss ratio expected to pick up slightly again.
It also targeted a cost-to-income ratio in the low 50s by 2024, the company said, warning its mid-term targets were heavily dependent on a global backdrop threatened by new risks such as Russia’s invasion of Ukraine.
Absa’s share price was up almost 4% in morning trade on Monday (trading around R173.11), following the release of its latest results.