Absa Group headline earnings more than doubled to R18.6 billion (about sh4.4Trillion) in 2021 (R8billion in 2020) well in excess of 2019 earnings, as pre-provision profit increased and as the impairments charge reduced substantially.
This reflects a stronger than expected economic recovery in South Africa, where Absa generates most of its income. South Africa’s Gross Domestic Product (GDP) improved from a low base in 2020 and showed improving momentum for most of the year.
All of the countries in which Absa has a presence look to have returned to positive economic
growth during 2021. “This is a strong set of results which reflect the benefit of, not only the improved operating the environment in 2021, but also the deliberate actions that we have taken to ensure that Absa remains resilient and poised to resume our growth plans in a favorable environment,” said Jason Quinn, Absa Interim Group Chief Executive.
He added: “Our purpose-led approach to supporting our clients and communities defined our success in a tough environment while also creating value for shareholders.” ‘Revenue growth remained resilient.
Absa Group’s revenue growth remained resilient at 6%, or 8% in constant currency, supported by strong growth in net interest income (up 9%). Non-interest income was in line with 2020 levels, as the negative impact of Covid-19-related claims in the insurance business eroded the benefit of strong income increases in areas including Global Markets.
Absa continues to make material investments in information technology (IT), where costs increased by 19% to R4.9 billion(sh1.16Trillion) as Absa sought to build on the gains made during the past three years in improving system reliability and stability for customers and to strengthen security and controls.
Impairment charges were significantly lower than in the prior year as fewer customers defaulted on loans and the outlook for defaults improved on the back of improved macro-economic conditions.
Customer deposits grew 12%, supported by strong performance in the retail and business banking and corporate deposit portfolios and the closure of the Absa Money Market Fund, with a significant portion of those customers electing to migrate to Absa deposit products. Growth in gross customer advances at 7% was supported by strong growth in secured assets in South Africa, where home loans increased 9% and vehicle asset finance rose 10% as Absa continued to gain market share in these areas.
“We have come through the crisis in a strong position, having focused on managing operating leverage, building balance sheet resilience, and preserving capital,” said Punki Modise, Absa Interim Group Financial Director. She added: “These actions and our financial performance resulted in a return on equity that exceeds our cost of equity, years ahead of expectation.”
Retail and Business Banking (RBB)
RBB earnings more than doubled as significantly lower impairment charges were partially offset by a 3% contraction in pre-provision profit, reflecting the impact of higher excess mortality claims in the life insurance business, customer fee cuts of R600 million to alleviate strain on customers, and increased performance costs.
RBB operations outside of South Africa contributed to the improved performance and returned to profitability in 2021.
Since the start of the Covid-19 pandemic, RBB has focused on being close to customers and responding proactively and empathetically with initiatives to support them. This approach continued in 2021 as customers were supported through lockdowns and civil unrest with bespoke relief measures including debt restructuring, debt consolidation, and assisted asset realization.
In 2021, the focus shifted from mitigating the financial consequences of the Covid-19 pandemic to growing the business in a sustainable and selective manner through the dynamic execution of the strategic transformation journey launched in 2018. Corporate and Investment Banking (CIB)
CIB headline earnings increased to levels higher than prior to the pandemic, with strong growth recorded across corporate banking and investment banking and across regions.