In a voluntary trading update released today, Absa Group Limited, a leading financial services provider in South Africa, has provided insights into its financial performance for the year ending 31 December 2023. The update includes guidance on various key financial indicators and strategic initiatives.
The group anticipates robust high single-digit revenue growth in 2023, primarily driven by net interest income. This growth is attributed to the expansion of the balance sheet and the impact of higher policy rates. Despite expecting high single-digit growth in customer loans and deposits, revenue growth is forecasted to decelerate in the second half of 2023, influenced in part by material base effects.
Absa Group acknowledges that its credit loss ratio is expected to surpass the through-the-cycle target range of 75 to 100 basis points. This is a consequence of significantly higher policy rates. While a noticeable improvement in the credit loss ratio is expected in the second half, it is projected to remain above the through-the-cycle range.
The group foresees high single-digit growth in operating expenses, resulting in a slightly higher cost-to-income ratio compared to the previous year’s 51.2%. However, mid-single digit growth in pre-provision profit is expected, reflecting a balance between operational costs and profit generation.
A significant development in the update is the inclusion of a broad-based black economic empowerment transaction in the 2023 financial results for four months, starting from 1 September 2023. The group expects this transaction to marginally reduce 2023 earnings by approximately 1%.
Despite an expectation of an RoE somewhat lower than the previous year’s 16.4%, Absa Group aims to surpass the Group’s cost of equity of 14.5%. Geographically, the update indicates that full-year earnings trends are likely to mirror the first-half performances. Notably, earnings in South Africa are anticipated to decrease, while Africa Regions earnings are expected to rise, even accounting for hyper-inflationary conditions in Ghana.
The Group’s CET1 capital ratio is projected to remain above the top end of the Board target range of 11.0% to 12.5%. In line with its commitment to shareholders, Absa Group plans to maintain a full-year dividend payout ratio of at least 52%.
The forecast financial information provided in the update is the sole responsibility of the Board and has not been reviewed or reported on by the Group’s external auditors. The group is set to release its audited 2023 financial results on 11 March 2024.