South Africa-based Absa Group has reported an 82% slump in its Half-year Net earnings after the lender increased its provisions against potential credit losses four-fold to US$ 869.8 Million.
In a statement, the lender warns that the present challenging environment for businesses and individuals could get worse for the remainder of the year.
Absa Group is considered one of South Africa’s largest financial services organisation, with majority stakes in banks in Botswana, Ghana, Kenya, Mauritius, Mozambique, Seychelles, South Africa, Tanzania, Uganda and Zambia.
The Group attributes this decline in financial performance to huge provisions as customers and clients struggled to repay their loans.
The lender also increased its provisions against future potential credit losses.
“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 Daniel Mminele, Absa Group Chief Executive.
As at 30 June, Absa had provided US$ 514.8 Million of relief on US$ 9.1Billion 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 12% of loans on its books.
Absa Group subsidiaries were adversely affected by the virus, manifested by a five-fold increase to provisions. These subsidiaries afforded customers payment relief on loans totalling US$1.5 Billion.
The subsidiaries now contribute 26% of Group revenue.
Separation from Barclays
Absa continued to deliver against major business imperatives during the period, achieving substantial separation from Barclays and completing the process of renaming and rebranding its operations in 12 countries.
The lender says the separation has fundamentally improved Absa’s resilience, systems and capabilities, to the benefit of staff and customers.
The South African business of Absa Group pre-provision profits increased by 10% in the prior year. Credit impairments increased significantly as balance sheet resilience was built given the challenging macro backdrop for borrowers.
Home loans registrations were down 31% while the market contracted by 39%. Vehicle and asset financing decreased by 19% in a market that shrunk by 42%.
Retail deposits grew 12%, in line with the market. There was a substantial net insurance premium growth of 9%.
The Group’s Corporate and Investment Banking (CIB) business was the most significant profit generator in the period following strong growth from the global markets business across the continent.
Pre-provision profits increased by 24% supported by broad-based revenue growth and cost containment actions.
Credit impairments increased seven-fold as the Group provided for customers in sectors most exposed to the crisis.
In its outlook, Absa Group says that while uncertainty remains high, the Group is well-positioned with a substantial capital and liquidity position to support its customers.
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