Absa warns demand for credit stays weak.

06 August 2013 - Which Way To Pay

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Loan income to remain under pressure

South Africa’s Absa CEO Maria Ramos, warns loan income will stay under pressure as demand for credit stays weak. Ramos made the comment on a conference call with reporters following the release of Absa’s first half earnings.

Aggressive push for unsecured loans

Absa, South Africa’s third largest bank by market value, has remained cautious of the of the higher risk unsecured loans that have increased margins at its rivals. Because interest rates have been at their lowest for decades, many other South African banks have made an aggressive push into unsecured loans, raising concerns bad debts could sour as household debt levels rise.

Absa has 8% increase in headline earnings

Absa posted an 8% increase in headline earnings to R4 663m from R4 313m and improved its return on average equity (RoE) to 14,0% from 13,7%. Net interest income, totalled 12.5 billion rand ($1.3 billion) compared with 11.9 billion rand last year. Bad debt costs fell 14% to 3,5 billion rand. Absa is the first of the country’s “Big Four” banks to post earnings. "Certainly, the headline earnings growth of 8 percent is not fantastic. If one looks at the source of the earnings, a lot of it has got to do with cost savings," said Reuben Beelders, chief investment officer of Gryphon Asset Management in Cape Town. "The bulk of the kick in earnings is really just the improved credit impairment (bad debt) scenario, and the market is basically saying, 'That's not really growth.'"

Demand for credit stays weak as the country continues to struggle.



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