Absa set for tough second half

ABSA, South Africa's biggest retail bank, which is controlled by UK banking group Barclays, expects the second half of the financial year to be as tough as the first.

The group posted a 17% rise in attributable earnings for the first half to June to R3.842-billion but a 4% fall in fully diluted headline earnings per share to 539.3c yesterday.

Absa attributed the difference between changes in headline and attributable earnings mainly to impairments recognised by Absa Capital against the value of equity positions acquired resulting from single-stock futures defaults in the first half of last year.

The fall in headline earnings was due to an increase in the weighted average number of shares in issue owing to the conclusion last year of the group's broad-based black economic empowerment transaction.

The group declared an interim dividend of 225c per share.

Absa said the business environment would probably remain challenging in spite of its expectation that the economic upturn would go on and household spending would slowly recover.

"In excess of one million job losses and high levels of household indebtedness will continue to weigh on the willingness and ability of households to take on new debt," the group said.

"Investment growth is expected to remain tepid until the slack that was built up during the recession is fully utilised, thus making a quick recovery in corporate credit demand unlikely."

Absa recorded a 15% return on average equity versus 16.3% previously and a return on average assets of 1.08%, compared with 1.02% previously.

Subdued asset growth, low transaction volume growth, the continued increase in insurance claims and the weakness of equity markets affected revenue, Absa said.

Earnings were, however, positively influenced by a drop in the retail credit impairment charge.

The group continued to invest in people and information technology to position itself for growth.

Group retail banking operations and Absa Capital grew attributable earnings, but a "challenging operating environment" cut Absa Business Bank and bancassurance operations' attributable earnings.

Fears about the sustainability of the global economic recovery had remained top of the global agenda in the past six months, fuelled by the European sovereign debt crisis and the potential impact of fiscal austerity measures on economic growth in the eurozone.

"This illustrates that the global economic recovery will remain fragile and that the trajectory of the expected upturn will not be smooth," it said.

The South African economy had begun to show signs of recovery, with first quarter gross domestic product growing at an annualised rate of 4,6%. Output in the primary and secondary sectors of the economy grew, but output levels in these sectors had not yet recovered to levels before the global financial crisis.

There was a glitch yesterday when the JSE suspended trade in Absa shares briefly after the group's interim results were published in an advertisement in the Financial Mail a day before they were due to be officially released.

Andre Visser, general manager issuer services at the JSE, said that trade in Absa shares was suspended until the group's results could be published on the JSE's Sens news service, which they were a short while later, allowing trade in the bank's shares to be resumed.

BDFM managing director Mzi Malunga blamed the debacle on "a communication lapse on the part of the FM" and apologised to Absa for the error.

A spokesman for Absa said it was "trying to get to the bottom of the mishap".