Absa Group Limited announced a voluntary trading update for the six months ended 30 June 2023. Despite facing headwinds such as weaker economic growth and higher interest rates than expected, Absa Group remains optimistic about its interim 2023 financial results.

The Group foresees a significant increase in revenue for the first half of 2023, with a year-on-year growth rate in the low teens. This growth is primarily driven by a robust mid-teen expansion in net interest income, attributed to double-digit growth in gross customer loans and deposits. Additionally, the higher interest rates have resulted in a net interest margin expansion, further contributing to the positive revenue performance. Non-interest income is also expected to grow strongly, particularly in the Africa Regions and insurance revenue sectors.

Absa Group is focused on achieving positive operating JAWS, a measure that compares income growth to expense growth, and aims to further improve its cost-to-income ratio to approximately 50%. The Group also anticipates mid-teen growth in pre-provision profit, demonstrating its commitment to effective cost management and operational efficiency. However, Absa Group acknowledges that the pressure faced by South African consumers due to significantly higher interest rates may lead to a substantial increase in credit impairments. As a result, the credit loss ratio is expected to range between 1.25% and 1.30%.

Although the credit challenges may impact profitability, Absa Group maintains confidence in its financial strength. The Group’s return on equity for the period is projected to be slightly below 17%, reflecting the economic climate’s impact on its performance. Nevertheless, Absa Group’s strong common equity tier 1 capital ratio positions it well to increase its dividend payout ratio to at least 52% for the period, demonstrating its commitment to delivering value to shareholders.

The Group expects low single-digit growth in both IFRS headline earnings per share (HEPS) and normalised HEPS for the first half of 2023. This modest growth is attributed to a relatively high base from the previous year. However, IFRS earnings per share are anticipated to increase by mid-single digits year-on-year, reflecting Absa Group’s ability to adapt to market conditions and maintain solid financial performance.

It is important to note that the financial information presented in this trading statement has not been reviewed or reported on by Absa Group’s auditors. Shareholders can anticipate a more comprehensive overview of the Group’s performance during the first half of 2023 when Absa Group releases its interim financial results on 14 August 2023.