Absa Profit Rises 19% on Retail Bank Growth, Cost Controls

Absa Group Ltd. (ASA), the South African bank controlled by Barclays Plc (BARC), said full-year profit increased 19 percent on improved income from consumer banking and lower costs.

Net income climbed to 9.67 billion rand ($1.27 billion) from 8.12 billion rand a year earlier, Johannesburg-based Absa said today in a statement. Earnings per share excluding one-time items rose to 13.55 rand, beating the 13.26-rand median estimate of 18 analysts surveyed by Bloomberg. Bad loans as a percentage of total lending shrank to 1.01 percent, and that ratio should shrink below 1 percent in 2012, the bank said.

Absa, South Africa’s largest retail lender, has been trying to contain the cost of implementing technology systems as it integrates operations with Barclays across Africa. Along with rivals FirstRand Ltd. (FSR) and Standard Bank Group Africa Ltd., Absa wants to boost profit by tapping into the continent’s 1 billion people as economic growth outpaces developed regions.

The bank’s 1.32 percent return on assets was “pleasing,” though the credit-loss ratio remains too high due to older bad loans, said Johann Scholtz, an analyst at Afrifocus Securities in Cape Town, who gives Absa his only “buy” rating among South Africa’s four largest lenders. His recommendations on Absa produced the best total returns in the past year.

The stock rose 0.9 percent to a record high of 151.88 rand and was up 0.3 percent to 150.91 rand as of 10:24 a.m. in Johannesburg trading.

“Improved non-interest revenue growth, lower credit losses, better cost containment and a wider net interest margin were the primary reasons for Absa’s headline earnings growth,” the lender said. “Management is committed to keeping cost growth below revenue growth again this year.”

Dividend Increase

The firm boosted its final dividend by 70 percent to 3.92 rand a share, increasing the year’s total payout by 50 percent to 6.84 rand. Absa is confident its dividend levels are sustainable, financial director David Hodnett said on a conference call.

“I’m surprised by the timing and the mechanism chosen to return surplus capital,” given that local regulators haven’t decided on how South African banks should approach international Basel III capital rules, Afrifocus’s Scholtz said. A one-time special dividend would have given Absa more flexibility, he said.

Absa is unlikely to boost lending in the coming year given the bank’s limited risk appetite, Deputy Chief Executive Officer Louis von Zeuner said on the call.

Absa shares have gained 7 percent in 2012. It’s the second- worst performing stock on the six-member FTSE/JSE Africa Banks Index (JBNKS) this year after Capitec Bank Holdings Ltd.

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net

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