- Absa issued a trading update on Wednesday evening warning investors to expect sn up to 85% fall in headline earnings per share.
- The bank said its credit impairments were four times higher in the first six months of 2020 compared to the same period in 2019.
- It also struggled with lower transactional volumes, policy lapses and lower loans volumes.
Fewer banking transactions, consumers struggling to honor their debt repayments, policy lapses and record-low interest rates have created a cocktail of misfortunes expected to cause Absa's earnings to tank by as much as 85%.
The banking group - which had started reclaiming market share in 2019, through its Africanacity strategy of more aggressive lending than it did under the Barclays' rule - warned shareholders on Wednesday evening that its revenue growth had slowed to low single-digit levels in the first half of 2020.
Banks were expected to suffer some of the worst bruises from Covid-19 restrictions that brought many industries to a standstill and left millions of South Africans out of jobs and unable to pay their bills. Standard Bank was the first to warn shareholders that Covid-19 had created a R2-billion hole which would likely halve its earnings for the first half of 2020.
But Absa's trading update paints the gloomiest picture so far: The bank said that its credit impairments were four times higher in the six months ended on 30 June compared to the same period in 2019. This saw its credit loss ratio jump to 2.77% from 0.79% in June last year. The bank, however, said it expects credit impairments to decrease significantly in the second half of 2020.
Still, the first half numbers could be difficult for shareholders to stomach: Absa expects between 80% and 85% dip in its normalised headline earnings per share. On international financial reporting standards basis, the headline earnings per share and earnings per share are expected to decline by between 92% and 97% respectively. Absa will give more details when it presents its results on 24 August.