Absa warns of impending writedowns after a good year for loans and deposits

Absa, South Africa’s fourth-largest lender, says a recovery in its life insurance business and rising interest rates have contributed to a double-digit revenue increase so far in its 2022 fiscal year, but it is seeing strain on consumers as a result of more difficult conditions, and impairments are rising as well.

Absa said in an update that all of its divisions saw “solid” loan growth in the ten months to the end of October, with pre-provision profits increasing by more than a fifth.

“Given higher policy rates and the uncertain macroeconomic outlook, we will maintain strong loan coverage. Our credit impairments are expected to increase year-on-year, resulting in a credit loss ratio in the upper half of our through-the-cycle range and above our first-half charge of 91 basis points,” Absa said.

Interest rates in the country have risen by 325 basis points this year. Absa expects impairments in its vehicle finance and personal loans books to increase materially, while it expects impairments in its home loans book to “normalise”

Customer deposits increased by double digits. Its revenue increased by “low teens,” and its net interest margin benefited from rising interest rates, which also increased net interest income by “low teens.” Non-interest income increased by the low teens as well.

The bank now anticipates that revenue for the full fiscal year 2022 will increase by the low teens year on year, owing to low double-digit net interest income growth and high single-digit growth in customer loans, among other factors. As a result, the bank anticipates “substantial” pre-provision profit growth in the low 20s.