South African banking group Absa cautioned on Thursday that its headline earnings for the second half of the year could be somewhat lower than that achieved in the first six months.
The group’s earnings for the first half of the year ended June were up 22,4% to R3,46-billion compared to pro forma earnings of R2,83-billion for the corresponding period of the previous financial year.
But Absa CEO Steve Booysen pointed out at the group’s results presentation on Thursday that given the current volatility of the equity markets, Absa’s bancassurance earnings for the full year were unlikely to match the earnings of the previous year. In addition, some deceleration in advances growth was expected over the next six months owing to possible further increases in interest rates.
“This may lead to the rate of headline earnings growth being somewhat lower for the full year compared with the growth experienced for the six months under review,” he added.
Booysen said the domestic economic landscape was expected to remain favourable, but further global instability remained a possibility. Monetary policy tightening was expected to cause some moderation in credit growth numbers over the next 12 to 18 months. Inflation was expected to accelerate, but economic growth was likely to remain firm at around 4% per annum.
“Interest margins are expected to remain relatively stable over the next year owing to the benefits of the expected increase in interest rates being offset by the increasingly competitive market and increased reliance on wholesale funding.
“Consumer debt affordability levels are expected to remain acceptable, with the household debt-to-income ratio increasing at a slower pace than previously experienced. As a result, credit quality should remain good, but the impairment charge will move to more normalised levels than those achieved for the past two reporting periods,” Booysen added.
He noted that South African financial markets had not escaped the impact of investor concerns regarding higher US inflation and the rising global trade, investment and saving imbalances. Commodity prices had fallen in the second quarter and many emerging market currencies, including South Africa”s, had been negatively affected by fears that global growth would succumb to the effects of the tighter monetary policies of numerous monetary authorities, he said.
For banks, the tighter monetary policy could, over time, have an adverse effect on volumes and bad debt provisions. However, higher interest rates were not expected to materially affect economic growth, with the slightly weaker rand likely to lend support to South Africa’s exports, he added. – I-Net Bridge