ABSA keeps dividend purse tightly shut as profits plummet

The country is an a recession as the economy has been battered by an extended lockdown. Thousands of businesses have shut their doors. Unemployment is at a 17 year high as millions of people have lost their jobs. Many customers are defaulting on loans and living off of credit while they struggle for income. It’s no surprise that South African banks like ABSA have taken a knock on earnings and are being cautious with what they have in their coffers. – Melani Nathan

Absa South Africa rules out dividends with profit down 40%

By Vernon Wessels

(Bloomberg) –Absa Group said it’s unlikely to pay an ordinary dividend this year as the South African bank conserves cash to deal with the economic fallout from the coronavirus pandemic.

Earnings before one-time items and accounting adjustments will probably decline more than 40% from a year earlier, Johannesburg-based Absa said in a statement on Thursday. It’s withholding payouts despite having strong buffers and forecasting “improved second-half capital generation.”

Read also: One in three can’t find a job as SA unemployment soars to highest rate in 17 years

The lender is ruling out a dividend even after Standard Bank Group and FirstRand, Africa’s biggest banks, indicated they have surplus capital that could be distributed to investors. South Africa’s banking regulator is following peers in the northern hemisphere, which have urged banks to pause investor payouts at least until January.

Read also: South African economy on life support as companies fight recession, Covid

Lenders operating in South Africa are having to contend with the longest recession since 1992 and unemployment at a 17-year high after restrictions to curb the spread of Covid-19 hammered what was an already fragile economy. Absa’s headcount declined by 1,200 in the first nine months of the year, it said.

More 2020 guidance:

  • Net interest margin is expected to decline noticeably this year if South Africa’s central bank cuts interest rates by 25 basis points on Thursday. Year-on-year net-interest-income growth in the second half is expected to be similar to the first half.
  • Loan growth should slow in the second half, while deposits are expected to grow far faster than loans.
  • Operating expenses are expected to decline year-on-year, and will probably be exceeded by revenue growth.
  • Pre-provision profit growth is likely to slow slightly from the first half.
  • While the second-half credit loss ratio is likely to improve noticeably compared to the first half, it will remain above the through-the-cycle range of 75 to 100 basis points.
  • Return on equity is expected to remain well-below cost of equity this year, although it is likely to improve considerably in the second half.
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