Despite significantly higher credit impairments and the material impact of the lockdowns on transactional volumes, Absa Group, including all business units, remained profitable. In addition, revenue increased by 3% while the cost-to-income ratio reduced from 56.7% to 53.9%.
The group also reported an 82% decline in normalised interim earnings after impairments increased four-fold to R14.7 billion. Impairment charges rose as customers and clients struggled to repay debt and as the Group took decisive action to increase impairment provisions against future potential credit losses. The Group expects a continued difficult environment for the consumer and heightened uncertainty is expected in the remainder of 2020.
“In the current economic climate, ensuring continued operational and financial resilience is paramount. We are therefore temporarily holding our growth ambitions in abeyance to focus on cost management and capital and liquidity preservation while continuing to support customers,” said Daniel Mminele, Absa Group Chief Executive.
While the negative impact of the crisis on Absa’s earnings is clear, the interim results also highlight the resilience of the business.
“Our revenue remained resilient and our operating costs were well managed and responded to the crisis, resulting in encouraging pre-provision profit growth of 9%,” said Absa Group Financial Director Jason Quinn. “Our capital and liquidity levels are strong and will allow us to further support our customers as we emerge from the crisis,” he said.
Absa extended significant support to customers and clients across its operating markets. In South Africa, the Group’s largest market, Absa implemented a comprehensive payment relief plan. Measures included credit payment relief, insurance premium relief, the temporary expansion of the Credit Life product to cover a wider definition of loss of income, the waiving of Saswitch fees, and supporting the distribution of social grants and pension payments.
As at 30 June, Absa had provided R8.7 billion of relief on R154 billion worth of loans to 538 000 customers, including 20 000 businesses in South Africa.
Corporate and Investment Banking South Africa assisted clients on a one-to-one basis and granted payment relief on R37 billion of loans, 12% of their book.
Absa Regional Operations, including Absa Bank Ghana, afforded customers payment relief on loans totalling R25 billion.
In line with Absa’s commitment to be a force for good in the communities that it operates in, the group mobilised its citizenship programme as COVID-19 quickly evolved into a humanitarian crisis. Absa and its employees contributed over R71 million in support across the continent, contributing towards screening and testing, the provision of personal protective equipment for thousands of health workers and humanitarian support to vulnerable communities in the Southern, East and West African countries.
While the negative impact of the crisis on Absa’s earnings is clear, the interim results also highlight the resilience of the business.
“Our revenue remained resilient and our operating costs were well managed and responded to the crisis, resulting in encouraging pre-provision profit growth of 9%,” said Absa Group Financial Director Jason Quinn. “Our capital and liquidity levels are strong and will allow us to further support our customers as we emerge from the crisis,” he said.
Absa continued to deliver against major business imperatives during the period, achieving substantial separation from Barclays and completing the process of renaming and rebranding its operations in 12 countries. The separation has fundamentally improved Absa’s resilience, systems and capabilities, to the benefit of staff and customers.
Business unit performance
Retail and Business Banking South Africa (RBB SA)
RBB SA, the largest of the Group’s three business units by revenue, started the year in a strong position, building on the momentum from 2019 from the execution of its transformation journey. The benefits of improved momentum and the quality of the client franchise were evident in pre-provision profits which increased by 10% on the prior year. Credit impairments increased significantly as balance sheet resilience was built given the challenging macro backdrop for borrowers. Despite the macroeconomic challenges presented by COVID-19, RBB’s performance remained resilient compared to the market in a number of areas:- Home loans registrations were down 31% while the market contracted by 39%
- Vehicle and asset financing decreased 19% in a market that shrunk by 42%
- Retail deposits grew 12%, in line with the market
- Solid net insurance premium growth of 9%
