WRAPUP 2-Absa, FirstRand eye earnings slide as defaults rise

* Absa sees H1 headline EPS 15-25 pct lower

* FirstRand expects FY headline EPS down 28-33 pct

* Banks hit by bad debts, drop in investment portfolio value

* Absa shares fall 2 pct; FirstRand slides 4 pct

(Adds FirstRand CEO-designate comments)

By Serena Chaudhry

JOHANNESBURG, June 23 (Reuters) - South Africa's Absa Group Ltd (ASAJ.J) and FirstRand Ltd (FSRJ.J) forecast lower earnings on Tuesday as bad debts mount in the bank sector and a tough economic environment shrinks the value of investment portfolios.

South Africa is battling its first recession in 17 years and local banks have been hard hit by impairments at their consumer and retail units, as customers default on loans after a series of interest rate hikes up to June 2008.

FirstRand, the country's No.2 banking group, said it expected headline earnings per share for the year to end-June to fall by between 28 and 33 percent as a rise in non-performing loans hit its FNB banking unit and vehicle financing business Wesbank. [nLN671180]

Its shares fell 3.36 percent to 12.95 rand by 1116 GMT, lagging a 2 percent weaker JSE banking index .JBANK.

"FirstRand is very disappointing. We had anticipated that it would be worse than the guidance they previously gave, but ... whether they are just literally kitchen-sinking everything this year remains to be seen," a Johannesburg-based analyst said.

"A dreadful year, there's no doubt about it."

Analysts said Absa's update was also worse than expected, reflecting the difficult banking environment. Its shares fell 1.03 percent to 99.86 rand.

Absa, which owns the country's largest retail bank, said it sees headline EPS for the six months to end June down by between 15 and 25 percent. [nLN674394]

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