Absa sees muted growth in 2010, impairments to slow

Absa expects impairments to slow in 2010 and forecast muted growth as the economy recovers from recession and pressure on credit-squeezed consumers begins to ease.

Absa, majority-owned by Britain’s Barclays , posted lower 2009 profit on Tuesday due to rising impairments, which doubled in the first half, and a writedown on assets it had to buy after clients defaulted on futures contracts.

The first of South Africa’s big four banks to report results said headline earnings per share for the year to end-December fell 25,5% to 1 099,40 cents, in line with its own forecast of a 25% to 35% drop.

Chief executive Maria Ramos said the group expected impairments to slow as Africa’s biggest economy sluggishly gets back on its feet after battling its first recession in 17 years.

“We do see some growth this year, but it’s going to remain muted. I think consumers are doing a little bit better but we still see them under a bit of pressure,” Ramos said in a conference call.

“We expect impairments for the group to be a bit better than they were last year and the impairment ratio to trend downwards around 1,5%, and on the retail side to around 2,1%.”

Absa, South Africa’s biggest mortgage lender, said its impairment charge increased by 53,6% to R8,967-billion for 2009, with impairments on losses and advances at 1,74% versus 1,19% a year ago.

Corporate strain
Shares in the banking group gained 1,23% at R134,63 by 7.31am GMT, ahead of firmer JSE Top-40 and JSE banking indices.

“Much better than our numbers, a very strong performance,” one Johannesburg-based banking analyst said. “Impairments came in lighter than anticipated … On the first take it looks very, very good.”

Bad debts
South African banks have been hit hard by rising bad debts over the past year as consumers, battling tough economic conditions and job losses, struggle to pay back loans.

Absa’s peer Nedbank, due to report results next Thursday, has forecast a 25% to 35% drop in full-year diluted headline earnings per share due to rising bad debts.

Ramos said there were still concerns over impairments on Absa’s corporate side, which increased sharply in 2009, with credit impairments at the group’s commercial bank trebling to R872-million.

“We will only see impairments peak towards the end of the first half of this year, probably early second half of the year, and we think in terms of ratio, it’s going to peak at 0,8%,” she said.

2009 earnings were also hit after Absa’s investment banking arm Absa Capital was forced to write down the value of stakes in companies it acquired in December 2008 due to clients defaulting on single stock futures contracts.

Absa’s parent Barclays beat expectations on Tuesday with profits of over £11-billion last year. – Reuters

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