Increase in Absa Group profits in 2021 thanks to lower impairments and higher pre-forecast profit
Absa Group Interim Chief Executive Officer Jason Quinn.
Absa Group’s overall profit more than doubled to R18.6 billion in 2021 (R8 billion in 2020), well above 2019 profit, as pre-provision profit rose and charge depreciation has decreased significantly.
The improvement partly reflects a stronger-than-expected economic recovery in South Africa, where Absa generates most of its revenue. South Africa’s gross domestic product improved from a weak base in 2020 and showed improving momentum for most of the year. All the countries in which Absa is present seem to have returned to positive economic growth in 2021.
“This is a strong set of results that not only reflects the improved operating environment in 2021, but also the deliberate actions we have taken to ensure Absa remains resilient and ready to resume its recovery plans. growth in a supportive environment,” said Absa Interim Group Chief Executive Jason Quinn.
“Our purpose-driven approach to supporting our customers and communities has defined our success in a challenging environment while creating shareholder value,” he said.
Revenue growth remained resilient at 6%, or 8% at constant exchange rates, supported by strong growth in net interest income (+9%). Non-interest revenue was in line with 2020 levels as the negative impact of Covid-19 claims in the insurance industry eroded the benefit of strong revenue increases in areas such as global markets .
Solid revenue growth and cost management have contributed to positive pre-provision earnings growth over the past two years.
Absa continues to make significant investments in information technology (IT), where costs rose 19% to R4.9 billion as Absa sought to build on gains made over the past three years to improve system reliability and stability for customers, and to strengthen security and controls. Impairment charges were significantly lower than the prior year as fewer customers defaulted on their loans and the outlook for default improved due to improved macroeconomic conditions.
Customer deposits increased by 12%, supported by the strong performance of retail and corporate banking and corporate deposit portfolios and the closure of the Absa Money Market Fund, as a significant portion of these customers opted to migrate to Absa depot products. Growth in gross customer advances to 7% was supported by strong growth in secured assets in South Africa, where home loans grew 9% and automotive asset finance increased 10% as Absa continued to gain market share in these areas.
“We have come through the crisis from a position of strength, focusing on managing operating leverage, building balance sheet resilience and preserving capital,” said Punki Modise, Absa Group’s interim chief financial officer.
“These actions and our financial performance have resulted in a return on equity that exceeds our cost of equity, years ahead of expectations,” she said.
Return on equity improved to 15.8% in 2021, while the Absa Group’s Common Equity Tier 1 (CET1) ratio was solid at 12.8%. At this level, Absa’s capital reserves are above the Board’s target level and above the minimum level of regulatory capital required.
Personal and Business Banking (RBB)
RBB earnings more than doubled as significantly lower impairment charges were partially offset by a 3% contraction in pre-provision earnings, reflecting the impact of higher excess mortality claims in the health insurance industry. life, customer fee reductions of R600 million to ease pressure on customers, and increased
performance costs. RBB’s 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, with clients being supported during lockdowns and civil unrest with tailored 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. customer franchise has strengthened, as evidenced by key performance indicators in South Africa, including:
- a 49% increase in home loan registrations
- automotive asset finance production up 24%
- new personal loans increase by 40% in South Africa
- chequing account sales increase by 73%, 24% more than in 2019
RBB SA is in the second phase of its 2018 strategy, focused on smart growth. His key priorities include improving customer first, advancing digitalization and growing small cap revenue, including in our integrated bancassurance operations.
In 2021, RBB revamped key features of the Customer Relationship Matrix, including the launch of a behavioral rewards program – Absa Advantage – which as a data-driven customer communication approach has improved understanding customer preferences and therefore enhanced the ability to engage with empathy in all interactions.
Social media engagement with customers was high across the business, as evidenced by improvements in the BrandsEye Net Sentiment Banking Index 2021, where Absa came out on top after being the least bank. ranked well for several years.
Absa also remained at the forefront of digital payment innovation with the launch of Apple Pay in South Africa, as well as contactless payments with Garmin wearable devices and FitBit, as well as the introduction of the universal QR scanning to pay in the Absa app in 2021.
Corporate and Investment Banking (BFI)
CIB’s overall profit reached higher levels than before the pandemic, with strong growth recorded in corporate and investment banking and across all regions. Earnings performance was supported by 10% revenue growth as the customer franchise expanded and the number of major bank customers increased. Improved credit performance and a 78% decline in impairment charges further supported earnings.
All major business units delivered double-digit revenue growth at constant currency, with strong performance from Markets despite the high base. A 14% increase in Global Markets revenue was supported by strong franchise growth across the Enterprise and Institutional customer base.
Having completed the balance sheet-focused phase of its strategy and its separation from Barclays, CIB is also prioritizing customer focus, as well as growth in deposit and non-interest income, carefully balancing growth and yields.
Absa has made significant progress in building on existing environmental, social and governance (ESG) capabilities and in its aspiration to become an African leader in this space. Absa was the first South African bank to announce sustainable finance targets with the aim of funding or arranging over R100 billion for ESG-related projects by 2025. We also announced the first certified green loan from Africa from the International Finance Corporation, worth $150 million. .
An active force for good
Absa has actively contributed to creating sustainable and inclusive economic growth in Africa, investing nearly R195 million to support communities through various youth education and employability initiatives, advocacy and thought leadership, as well as COVID-19 and civil unrest response initiatives. These included, among others:
- The launch of the Absa Fellowship Program, which aims to support the development of authentic, responsible and ethical future leaders with the potential to play a defining role in their respective communities in Africa.
- The Absa Cross Skilling program, a collaboration with our CIB customers to cross-skill 238 young people after the job cuts linked to Covid-19.
- 17,873 young unemployed people supported with technical, professional and digital skills, among others.
Absa has invested in initiatives that promote fairness, equality and transparency in all of our African markets. These included, among others, financial contributions and support to the management of the Gender Based Violence and Femicide Response Fund in South Africa.
Absa has also contributed to business support initiatives for informal traders and micro-enterprises affected by Covid-19 and civil unrest in South Africa.
The outlook for the global economy in 2022 is particularly uncertain. Events in Ukraine are serious, and sharp swings in commodity prices and potential supply disruptions are likely to trigger significant revaluations. Absa currently expects the South African economy to grow by 2.1% in 2022, returning to pre-Covid absolute GDP levels by the end of the year. In countries outside of South Africa, where Absa operates, GDP-weighted economic growth of 5.3% is expected.
Based on these assumptions, and excluding other major unforeseen political, macroeconomic or regulatory developments, Absa expects high single-digit revenue growth in 2022 and return on equity at similar levels to 2021. .
“While the outlook for the global economy in 2022 is particularly uncertain, we are positive about the solid foundation we have built over the past few years and how this has positioned us to achieve our strategic objectives,” he said. Quinn said. “We will pursue growth opportunities appropriate to the environment and strengthen buffers where necessary to ensure the bank remains resilient.”