Banking group Absa has recorded a sharp rise in credit impairments, with the group’s credit loss ratio now sitting outside of its targetted range.

The group recorded total income of R104.6 billion for the year, up from R96.8 billion the year prior. Discounting the Barclays separation effects, this is only marginally lower at R104.5 billion (normalised).

Normalised headline earnings were R20.9 billion, higher but relatively flat compared to the R20.7 billion recorded in FY2022.

The group saw its headline earnings per share increase marginally by 1% to 2,422.3 cents for the financial year ended 31 December 2023 (FY23).

Although the group’s H2 dividend per share dropped by a sizeable 12.7% to 685 cents per share, its total dividend for the year increased by 5% to 1,370 cents per share.

Financials FY22 FY23 Change
Basic earnings per share (cents) 2 443.3 2 400.3 -1.8%
Headline earnings per share (cents) 2 408.2 2 422.3 +1%
Dividend per share (cents) 1 300 1 370 +5%

Consumer pain

Absa is, however, also the latest financial services provider to see an increase in bad debts.

The group’s credit impairment charges increased by 13.4% from R13.7 billion in FY22 to R15.5 billion in FY23.

Credit impairments in the everyday banking segment were the most prolific, with the R7.6 billion recorded nearly making up half of all total credit impairment charges.

Source: Absa

This was also reflected in Absa’s overall commentary, with the group noting that, on a geographic basis, headline earnings in South Africa decreased 18% to R14.676 billion from R17.933 billion.

Countering this, the group’s Africa regions grew 124% to R6.25 billion from R2.79 billion the year before.

“During 2023, the South African economy faced a difficult external environment and the debilitating impact of sharply heightened electricity load shedding and significantly weaker performance in key transport infrastructure,” the group said.

This had a knock-on effect on South Africa consumers, with Absa flagging higher credit charges in the South African retail lending portfolios – given increased interest rates and inflationary pressures – as another cause for higher impairments.

South Africa’s prime rate of 11.75% on 31 December 2023 was 125bps higher than on 31 December 2022 and 475bps above the bottom of the rate cycle from mid-2020 to late 2021.

“The credit loss ratio increased from 96bps to 118bps, exceeding the Group’s through-the-cycle target range of 75 to 100bps. The second-half credit loss ratio improved to 109bps from 127bps in the first half of 2021,” it said.

Several other financial services providers have highlighted an increase, with the FNB’s impairment charges increasing by 31% for the six months ended 31 December 2023 amid the challenging economic environment characterised by elevated inflation and 15-year high interest rates.

The credit loss ratio thus jumped from 128 bps in the prior period to 155 bps in H1 2024.

“This outcome is broadly in line with expectations given the group’s origination strategies and economic outlook. The strain was most evident in the retail portfolios,” said FNB.

Moreover, despite Nedbank seeing its headline earnings per share increasing by 15% for the financial year ended 31 December 2023, growth was partially offset by a 30% increase in the impairment charge.

Although Nedbank’s credit loss ratio improved from 121 bps in the first six months of the year to 109 bps by the end, it was still far higher than the 89bps seen in FY22.

Absa said that, reflecting higher average policy rates, its credit loss ratio is likely to remain above its through-the-cycle target range of 75 to 100 basis points, but improve slightly year-on-year.

“We expect elevated first half credit impairments, with a credit loss ratio similar to 1H23’s 127bps, although the second half is likely to improve to the top of our target range,” the group said.