Absa Group Ltd. (ASA), the South African bank controlled by Barclays Plc (BARC), declined the most in more than 10 years after saying first-half earnings before one-time items fell as much as 10 percent after bad loans increased.
The stock retreated 8.3 percent, the biggest drop since January 2002, to 143.50 rand, at the close in Johannesburg, wiping 9.3 billion rand ($1.1 billion) off the company’s market value and making it the worst performer on the 162-member FTSE/JSE All Share Index today. The shares were the second-most traded by value on the gauge.
Other lenders in South Africa, including FirstRand Ltd. (FSR) and Nedbank Group Ltd. (NED), have reported declining impairments on bad loans this year. Absa’s credit impairments had been falling since June 2009 as the economy recovered from the global financial crisis and a recession. While interest rates are at 30-year lows, growth in Africa’s largest economy slowed to an annualized 2.7 percent in the first quarter from 3.2 percent in the previous three months.
“There’s been a big increase in unsecured lending so the last thing clients want to see is higher debt,” Jacques Potgieter, head of trading at Tradition Financial Services, said in a phone interview in Johannesburg today. “People are getting scared and taking profit. The market has also been overbought.”
Revenue growth in the first five months was “also subdued” Absa said in a statement today. “While our new lending volume is improving, this is only expected to become evident during the second half of 2012,” the company said.
“Credit impairments have increased due to higher cover required on our mortgage legal book, as property prices and distressed customers remain under pressure,” Absa said.
“I think it could be isolated to Absa as they have the biggest mortgage book and that is where a lot of pain is being felt,” said Kokkie Kooyman, head of Sanlam Investment Management Global in Cape Town. “South African banks are rated too highly by the market and pricing in too much good news so a sudden deterioration then hits the share price hard.”
FirstRand, South Africa’s second-largest banking group, doesn’t expect overall bad debts to “show an increasing trend” in the second half of its 2012 financial year, Michael Jordaan, chief executive officer of the group’s First National Bank unit, said in an e-mailed response to questions from Bloomberg.
Absa’s decline helped drag the FTSE/JSE Africa Banks Index (JBNKS) down 2.9 percent, the most in nine months.
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