Absa Group said a stronger rand will negatively impact its earnings growth from its Africa Regions in the six months to March 31, 2026.
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Absa Group’s share price fell more than 5% early Tuesday morning after it forecast headline earnings growth of mid- to high single digits for the six months to March 31, with growth pared by a weaker Africa Regions segment.
The share price fell 5,72% in early trading to R230,14 on the JSE after the release of the trading statement, although the price was still 29,5% higher than the same time last year.
The earnings forecast would leave the group with a similar RoE (return on equity) to the 14,8% in the first half of last year. A more than 5% decline in the share price represents a relatively large decline for one of South Africa’s biggest banks.
“The stronger rand will reduce group revenue, costs, and headline earnings slightly during the first half. We expect strong headline earnings growth in South Africa, given solid pre-provision profit growth and a lower credit loss ratio. Conversely, we expect Africa Regions headline earnings to decline due to lower net interest income and higher credit impairments,” the bank's directors said in a trading update.
The bank said it expected to achieve a 2026 RoE of around 15%, mostly due to weaker net interest income than the bank originally anticipated, given margin compression in Africa Regions.
However, “we are confident that our revenue and earnings momentum remains on track medium-term, given healthy growth in our client franchise and net interest margin stabilisation post the rate cutting cycle, particularly in Africa Regions,” the directors said.
They noted that the operating environment remains challenging and uncertain. The Middle East conflict has increased global inflation expectations and dampened GDP growth.
“We have reduced our 2026 GDP growth expectations slightly for our largest countries, South Africa, Ghana, and Kenya. In South Africa, the SA Reserve Bank increased the policy rate in May, while we previously expected further rate cuts. Conversely, policy rates in Ghana have reduced materially and are lower than we expected, which is a near-term drag but should stimulate growth,” the directors said.
Group revenue was expected to grow by low to mid-single digits during the six months, with non-interest income growing faster than net interest income.
Net interest income growth remained modest, growing by low single digits, reflecting margin compression largely due to lower policy rates in Africa Regions.
Net customer loans and customer deposits were expected to grow by mid-single digits.
Personal and Private Banking (PPB) net customer loans were expected to grow by mid-single digits. In PPB South Africa, solid Vehicle and Asset Finance growth would offset modest growth in Home Loans and unsecured lending.
Corporate and Investment Banking (CIB) customer loans and Business Banking (BB) net customer loans were expected to grow by high single digits.
Mid-single digit growth in non-interest income was expected. Within this, growth in fee and commission income and in insurance income in South Africa was expected to be solid, while trading growth moderated after a strong first quarter.
Operating expenses were expected to grow by low to mid-single digits, resulting in slightly negative JAWS and a slightly higher cost-to-income ratio, with low single-digit pre-provision profit growth.
Broadly flat credit impairments and an improved credit loss ratio were expected.
“We expect slightly lower PPB credit impairments, driven by a better delinquency performance, partly offset by an increase in coverage due to the deteriorating macroeconomic forecast. We expect BB and CIB credit impairments to increase, with the latter off a low base,” directors said.
The bank planned to maintain its dividend payout ratio at around 55% for the interim period.
CIB headline earnings were expected to be broadly flat, with solid growth from Investment Banking and Global Markets, and lower earnings from Transactional Banking.
PPB is expected to report low double-digit headline earnings growth, in part due to lower credit impairments.
Modest BB headline earnings growth was expected, with solid growth in South Africa while Africa Regions declined given margin compression. A smaller head office loss was expected. The full results are expected to be released on August 18.
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