Absa confirms SA cycle turning for better - signals strong earnings as bad debts fall

Key topics:Absa signals credit cycle recovery with lower credit loss ratio in 2025Earnings and dividends expected to grow, RoE nudges higher to 15%African operations drive growth while SA retail remains muted but stable.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..BizNews Reporter.If you have been looking for a tangible sign that the credit cycle in South Africa has turned the corner, Absa Group’s latest voluntary trading update is it. In a detailed pre-close note to the JSE today, the banking giant effectively drew a line under the pain of 2024, guiding shareholders toward low double-digit earnings growth for the full year ending 31 December 2025.For investors who have stuck with the "Red Bank" through a period of elevated interest rates and consumer strain, this update offers vindication. The headline numbers are solid, but it is the trend in credit impairments that tells the real story of SA Inc.'s resilience.The Turnaround in CreditThe most critical metric in this update is the credit loss ratio (CLR). Banking, at its core, is the business of managing risk. In 2024, Absa’s CLR spiked to 103 basis points (bps)—a number that made the market nervous..Read more:.Absa teams up with Ripple to enter the crypto market.Today’s update confirms that the worst is behind us. Absa expects its credit loss ratio for 2025 to improve significantly, landing in the upper half of its through-the-cycle target range of 75 to 100 bps. This isn't just accounting magic; it is driven by fundamental improvements in Personal and Private Banking (PPB) and Corporate Investment Banking (CIB) in South Africa.When a bank's early arrears start clearing up—as Absa notes is happening in its retail book—it’s usually a precursor to a broader economic recovery.Earnings and DividendsThe improving credit picture flows directly to the bottom line. Absa expects Headline Earnings Per Share (HEPS) to grow in the low double digits.Return on Equity (RoE), the Holy Grail for bank investors, is nudging higher. The group expects an RoE of around 15% for 2025, up from 14.8% in 2024. While management notes that higher-than-expected reserves have inflated the equity base (mathematically dampening the RoE percentage), the trajectory is undeniably positive.Crucially for income-focused portfolios, the dividend policy remains robust. Absa plans to maintain a 55% dividend payout ratio, supported by a Common Equity Tier 1 (CET 1) ratio at the top end of its 11.0% to 12.5% target range.A Tale of Two MarketsThe update also highlights the divergent paths of Absa's operations.South Africa: Retail growth remains "muted." The consumer is still gasping for air, leading to modest loan growth and slight margin compression. However, the corporate side (CIB) is picking up the slack with strong wholesale lending.Africa Regions: This is the growth engine. Earnings from the continent are growing "noticeably stronger" than SA, despite the drag of the insurance business disposal.The table below summarises the shift in expectations:.Looking to 2026 and BeyondManagement is striking a confident tone for the medium term. The outlook for 2026 forecasts improved GDP growth across all key markets. While a potentially stronger Rand may act as a headwind for reported revenues, the underlying business is gearing up..Read more:.Investec: Client gains, credit quality steer earnings growth despite interest rate headwinds.The bank has set a bold medium-term target: an RoE of 16% to 19% for 2027–2030, aiming to be well within that range by 2028. To get there, they are targeting a cost-to-income ratio approaching 50%—an ambitious efficiency play that will require strict discipline on direct costs.The Bottom LineAbsa is effectively navigating the transition from a high-impairment environment to a recovery phase. The "head office loss" is shrinking, the African operations are delivering, and the South African retail book is stabilising.For shareholders, the combination of a 55% payout ratio and double-digit earnings growth makes for a compelling hold. The bank will release its final results on 10 March 2026. Until then, the message is clear: the ship has steadied, and the wind is filling the sails.

Absa confirms SA cycle turning for better - signals strong earnings as bad debts fall

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