Absa Group’s Financial Forecast 2023: Navigating Challenges and Driving Growth Amid Economic Shifts

  • Revenue Outlook: Absa Group projects robust high single-digit revenue growth in 2023, driven by net interest income and deposits.
  • Credit Management: Despite credit loss ratio surpassing targets, Absa anticipates improvement in the second half, remaining above range.
  • Strategic Initiatives: Inclusion of a broad-based black economic empowerment transaction and commitment to a 52% dividend payout ratio.
By Lethabo Ntsoane

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.

Financial Performance Overview

Revenue Growth and Loan Activity

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.

Credit Losses and Risk Management

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.

Operational Performance

Operating Expenses and Cost-to-Income Ratio

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.

Broad-Based Black Economic Empowerment Transaction

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%.

Return on Equity and Geographical Trends

Return on Equity (RoE) and Regional Earnings

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.

Capital Position and Dividend Policy

CET1 Capital Ratio and Dividend Payout

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%.

Disclosure and Future Reporting

Financial Reporting and Auditor Review

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.

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Lethabo Ntsoane

Lethabo Ntsoane holds a Bachelors Degree in Accounting from the University of South Africa. He is a Financial Product commentator at Rateweb. He is an expect financial product analyst with years of experience in reviewing products and offering commentary. Lethabo majors in financial news, reviews and financial tips. He can be contacted: Email: lethabo@rateweb.co.za Twitter: @NtsoaneLethabo