Barclays’s Absa Profit Declines 8.6% as Bad Debts Rise
Net income dropped to 4.19 billion rand ($508 million) in the six months through June from 4.58 billion rand a year earlier, the Johannesburg-based lender said in a statement today. Earnings per share excluding one-time items fell 6 percent to 6.04 rand, less than the median estimate of 6.20 rand by three analysts in a Bloomberg survey. Credit impairments increased 39 percent to 4.02 billion rand, raising the group’s credit-loss ratio to 1.59 percent from 1.16 percent.
It was these higher credit impairments, “particularly in mortgages, that were the principal reason headline earnings declined,” Absa said in the statement.
Amid an exodus of executives since Chief Executive Officer Maria Ramos took over in 2009, Absa has slowed lending. Unlike FirstRand Ltd. (FSR) and Standard Bank Group Ltd. (SBK), Absa hasn’t expanded in Africa and is still integrating its African operations seven years after Barclays took a stake. Barclays CEO Robert Diamond, who saw African expansion as a way to boost returns, resigned July 3 after the U.K. bank was fined for attempting to manipulate the London interbank offered rate.
Net interest income rose 2 percent to 11.9 billion rand, and the bank raised its dividend by 7.9 percent to 3.15 rand a share. Its return on equity decreased to 13.8 percent, which is above its cost of equity, from 16.2 percent.
“Pre-provisioning results were in-line with expectation, and the 8 percent increase in dividend will come as some relief to shareholders,” Greg Saffy, banks analyst at RMB Morgan Stanley in Johannesburg, said in an e-mailed response to questions today.
South Africa’s 50 basis-point interest rate cut this month will cost Absa about 190 million rand in income, Finance Director David Hodnett, said on the same call. Cost cutting will continue, Ramos said, with “the bulk” of the impact on staff coming in the form of natural attrition rather than job cuts.
“With moderate economic growth, Absa’s credit-loss ratio is expected to be in the region of 1.4 percent in 2012,” Absa said. “Revenue growth is likely to remain subdued this year. There are signs that consumers are starting to take strain.”
Absa is the only lender on the six-member FTSE/JSE Africa Banks Index (JBNKS) to decline this year, dropping 1 percent. The index is up 21 percent. Absa rose 3 percent to 139.70 rand by the close in Johannesburg, while the index jumped 3.1 percent.
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