Absa tops consensus as bad debts fall

Absa, the South African bank majority owned by Barclays, surpassed market expectations with a slight upturn in full-year earnings on Tuesday, helped by an improvement in bad debts.

Absa, the first of South Africa’s four largest banks to report earnings this year, forecast muted growth for 2011, echoing the tough outlook for many banks globally.

Lenders in Africa’s largest economy have been hamstrung in the aftermath of a 2009 recession that cut about a million jobs and eroded loan demand from both retail and corporate customers.

After being hid hard by impairments, or costs related to bad debts, Absa is benefiting from a more cautious lending stance, said Johann Scholtz, bank analyst at Afrifocus Securities.

“The biggest surprise would be that impairments improved better than expected,” Scholtz said. “The banks are pushing up their lending criteria. I think we’re starting to see the benefit of better quality business being written.”

Absa, South Africa’s biggest retail lender, said impairments dropped by a third in the year to end-December, after nearly quadrupling between 2007 and 2009.

In tandem with slack demand, rising costs have also put pressure on South African banks. Industry leader Standard Bank said last year it would cut more than 2 000 jobs in Johannesburg and London.

Absa CEO Maria Ramos said on a conference call that while the bank aimed to keep cost growth within single digits, it did not expect a “mass reduction” of staff.

Subdued outlook
Absa, whose parent Barclays reported a 32% rise in annual earnings, said in a statement the outlook for revenue and lending growth would remain subdued, and the decline in bad debt costs would likely be slower.

Absa’s diluted headline earnings per share totaled 1 115,72 cents in the year to end-December, compared with 1 072 cents a year earlier. That was above the average estimate of 1 109,72 in a poll of 12 analysts by Thomson Reuters.

Headline EPS, which excludes certain one-time items, is the main gauge of profit in South Africa. Diluted earnings take into account the impact of stock options on EPS.

Net interest income, the measure of a bank’s earnings from lending, totaled R23,34 billion compared with R21,85-billion a year earlier. Non-interest income dropped by 4%.

Absa’s rivals Standard and FirstRand are both due to report results in March, while Nedbank is due at the end of this month.

Shares of Absa were up 0,3% at R131,58, outperforming a slight decline in Johannesburg’s Top-40 index. – Reuters

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