Absa flags payout on profit rebound

Absa has flagged a rebound in headline profit in its half year to end June, saying its divisions are benefiting from materially lower credit impairments. Normalised headline earnings per share are expected to be between five and six times higher than the 173.6c reported to end-June 2020.

Absa, SA’s third-largest bank by assets, has flagged a rebound in headline profit in its half year to end-June, saying its divisions are benefiting from materially lower credit impairments.

Normalised headline earnings per share, which account for the effects of the bank’s separation from Barclays, are expected to be between five and six times higher than the 173.6c reported to end-June 2020, the group said in a trading update.

Credit impairments surged 297% to R14.6bn in the group’s six months to end-June 2020, as the financial services industry reeled from the effects of Covid19, forcing companies to set aside billions of rand to cover the worsening debt profile of customers.

Absa’s normalised headline earnings, the main profit measure in SA that strips out certain one-off items, slumped 82.3% to R1.46bn to end-June 2020.

Absa, along with Nedbank, did not pay dividends in the recent reporting season, but it expects to pay an interim dividend in 2021. Absa, which will release its interim results in August, said in March that it expected to resume paying dividends from the first half of 2021, “starting with a payout ratio of 30% and increasing to 50% over the medium term”.

Standard Bank and FirstRand opted to resume payouts to shareholders after the Reserve Bank lifted its guidance for financial institutions to hold on to capital in February, though it did say they should remain cautious.

The expected rebound in Absa’s profit comes amid signs of a recovery in the SA economy. Bankserv Africa said this week that the Bankserv Africa Economic Transactions Index (BETI)

— which provides an indication of activity in the economy by capturing interbank electronic payment transactions under R5m — recorded the highest and fastest growth on record in April owing to the low base in April 2020 and the current high commodity prices.

Bankserv said the figures pointed to a rapid economic recovery in SA.

“The BETI increased 25.9% year on year in real terms. This huge bounceback is mainly the result of the low base in April 2020 when the economy was under hard lockdown,” said Shergeran Naidoo, Bankserv Africa’s head of stakeholder engagements.

Absa’s share price was down 1.07% at R122.50 on Thursday.

THIS BOUNCEBACK IS MAINLY THE RESULT OF THE LOW BASE IN APRIL 2020 WITH THE ECONOMY UNDER HARD LOCKDOWN