News that Absa expects to see a “more than 40%” plunge in headline earnings per share (Heps) and earnings per share (EPS) for the year to end December, actually shows that it is turning the corner.
It’s an improvement from Heps and EPS slumping a massive 93% in the bank group’s half-year results to end-June.
The 40% drop could see Heps fall by over 700c from 1 750.1c, and EPS shrink over 687c from 1 717.6c in the previous year. This is in contrasts to the fall in Heps to 67.7c from 918.4c and EPS shrinking from 976.5c to 1 71.7 in Absa’s interim results.
The bank made the expected earnings drop announcement in a trading update for the first nine months of the year. It also expects normalised Heps for the year to decline by more than 40% from 1 926c.
The Covid-19 crisis has taken its toll on the bank, but it says impairments for the second quarter were better than expected.
“Credit impairments for the nine months trebled year-on-year given the substantial first-half charge. However, third-quarter credit impairments were better than expected, with a credit loss ratio slightly above the 100 basis point top end of our through-the-cycle target range.”
The banking sector responded to the crisis by granting substantial relief in terms of payment holidays.
Of the R154 billion in payment relief granted to RBB South Africa customers, 24% (by value) of these clients extended payment relief when it expired. And 0f the R116 billion in RBB South Africa relief book that expired, 91% of clients are paying and 9% have missed one or more payments.
“Missed payments on the expired payment relief book are lowest in relationship banking and home loans at 4% and 8% respectively, and higher in unsecured. As part of the government loan guarantee scheme R1.8 billion in business loans have been approved, from R0.5 billion at June 30, 2020.”
On the overall economy, it expects the real GDP to fall 8.7% this year and grow 2.6% next year.
It however expects further interest rate relief from the South African Reserve Bank. “We expect another 25-basis point cut in South Africa’s prime rate today (Thursday), although this remains finely balanced.”
“Thereafter, it is likely to remain flat until a 25-basis point increase in the fourth quarter of 2021. As a whole, our ARO [Absa Regional Operations] markets’ real GDP is expected to be largely flat this year, well below our pre-Covid-19 forecast of 5.7% growth and slightly lower than our estimate of 0.9% in August.”
It sees limited scope for further large rate cuts across the ARO portfolio.