Thursday, November 30, 2023

Absa weathers capital, liquidity uncertainties storm amid Covid-19

While uncertainty remains high, the Absa Group may be well-positioned with a strong capital and liquidity position allowing it to continue to support its customers, Sunday Standard has learnt.  

With the decisive actions that have been taken in the first half to improve balance sheet resilience, the Group expects the second-half impairment outcome and returns to improve.

Absa earnings for the 2020 interim financials presented last week showed a decline as the economic impact of COVID-19 increases impairment charges. 

The Group reported an 82 percent decline in normalised interim earnings after impairments increased four-fold to R14.7 billion. 

Impairment charges rose as customers and clients struggled to repay debt and as the Group took decisive action to increase impairment provisions against future potential credit losses.

Despite significant higher credit impairments and the material impact of the lockdowns on transactional volumes, the Group, including all business units, remained profitable. 

The Group expects a continued difficult environment for the consumer and heightened uncertainty is expected to dampen business confidence and investment in the remainder of 2020.

Making an online presentation of the interim results to both local and international media in which Absa operates, Daniel Mminele, Absa Group Chief Executive said: “In the current economic climate, ensuring continued operational and financial resilience is paramount. We are therefore temporarily holding our growth ambitions in abeyance to focus on cost management and capital and liquidity preservation, while continuing to support customers,” said. 

Payment relief loans on customers 

Absa extended significant support to customers and clients across its operating markets. In South Africa, the Group’s largest market, Absa implemented a comprehensive payment relief plan. Measures included credit payment relief, insurance premium relief, the temporary expansion of the Credit Life product to cover a wider definition of loss of income, the waiving of Saswitch fees, and supporting the distribution of social grants and pension payments.

As at 30 June, Absa had provided R8.7 billion of relief on R154 billion worth of loans to 538 000 customers, including 20 000 businesses in South Africa.

Corporate and Investment Banking South Africa assisted clients on a one-to-one basis and granted payment relief on R37 billion of loans, 12 percent of their book.

Absa Regional Operations afforded customers payment relief on loans totaling R25 billion.

Absa Regional Operations (ARO)

ARO, which comprises the operations in Africa outside of South Africa, continued to show strong top-line growth during the period and now contributes 26 percent of Group revenue.  These operations provide the footprint to support customers across the continent and provides diversification to the Group’s exposure.

Similar to the rest of the business, ARO was adversely affected by the crisis, manifesting as a five-fold increase to impairments. Despite this, the business remained profitable and contributed positively to Group earnings.

ARO highlights during the period included the successful completion of separation, specifically the brand and name change and migration of banking platforms and applications, as well as a notable increase in digital customer activity. The number of digitally active customers in the retail and business banking business grew by 28 percent, resulting in digital transactional volumes rising 77percent.

As for South Africa’s outlook, the macro environment has consistently disappointed for the past five years, and the outlook remains muted, compounded by the recent outbreak of coronavirus which will have an impact on the global macro outlook, and which will also have implications for the economic prospects in our other operating regions. 

“We will continue to drive the execution of our strategic objectives with agility, and take advantage of emerging opportunities, while managing risks more effectively in response to changes in the operating environment,” said Mminele.


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