Absa Group Africa has announced that its earnings increased 27% to Ksh. 79.8 Billion (R11 Billion) in the first half of the year as revenue increased, demonstrating a continued strong recovery from the global economic downturn in 2020.
Absa reported solid pre-prevision profit for the first half of the year, supported by revenue which rose by 14%, underpinned by growth across their business units and supported by a rebound in the insurance business in South Africa and increased interest rates across key markets. Net interest income and non-interest income rose 12% and 18%, respectively.
In June, Absa announced a strengthened and more diverse executive leadership team. Absa refined its operating model, adopting a flatter structure, bringing management closer to customers and allowing the Group to accelerate strategy execution. Effective 1 July, Absa has five business units, from two previously. All business units reported improved earnings and stronger returns during the first half.
The Group balance sheet remains well positioned, with Common Equity Tier 1 (CET1) having improved. CET1 and liquidity levels remain well ahead of regulatory and Board target ranges.
Costs were well maintained even as the Group increased investment in IT for enhanced digital performance and improved customer experience. Total IT spend grew 11% to R6 billion. Improved stability and enriched functionality saw digitally active customers grow across our businesses including a 10% increase to 2.2 million in retail and business banking in South Africa. Digital volumes have grown by 86% compared to 2019 levels whilst branch and ATM volumes have declined substantially.
Arrie Rautenbach, Absa Group Chief Executive Officer, “Our strong results reaffirm the strategic choices we made in 2018 and are testimony to the work we have undertaken in creating a business that is closer to customers. With a strong, experienced leadership team and an improved operating model, we now have a strong foundation for outperformance.”
RBB South Africa, the Group’s largest revenue generator, continued to execute against its 2018 strategic transformation journey, supported by the momentum of the economic recovery, specifically in the first quarter of the year. Although the operating environment became increasingly difficult in the second quarter, key performance indicators continued to trend positively and in line with expectations, benefitting from deliberate execution over the past three years. Home loans registrations, vehicle asset financing and personal loans, among other areas, increased.
Absa gained market share in key areas in retail advances including home loans and vehicle asset financing and our deposit market share continued to be strong at 22%. Customer numbers increased 1% to 9.6 million.
RBB earnings from Absa Regional Operations (ARO) increased strongly following very strong revenue growth, an encouraging performance as Absa repositions the business on a growth trajectory and improve returns.
Absa expects to achieve low double-digit revenue growth in 2022 compared with 2021. Operating expenses will likely increase by low to mid-single digits, with pre-provision profit growth in the teens, resulting in a cost-to-income ratio which is expected to be lower than 2021 levels. Return on equity is also expected to improve to approximately 17%.