February 10, 2012 / 6:07 AM / in 6 years

UPDATE 2-Absa earnings buoyed by lower bad debts

* Headline EPS 1,350 cents, vs 1,115.7 cents

* Year dividend 684 cents, vs 600.5 cents consensus

By Helen Nyambura-Mwaura

JOHANNESBURG, Feb 10 (Reuters) - Absa Group, the South African bank majority owned by British lender Barclays , met expectations with a 21 percent rise in full-year profit, after a sharp drop in bad debts helped it overcome weak demand for credit.

Like rivals in Africa’s top economy, Absa has been hit by slack demand for loans, as companies wait for a recovery. It has responded by trying to rein in costs and boost fees.

Absa, the first of South Africa’s top four banks to report earnings this season, said on Friday bad debt charges fell 15 percent, while its loan book shrank 1 percent.

Bigger rival Standard Bank has been aggressively courting new customers in South Africa. Africa’s biggest bank has said its South African business saw a 50 percent jump in personal and business loans in 2011.

Avior Research analyst Faizal Moolla said Absa’s loan book was a disappointment. “They are a bank and they need to basically take on additional risk. If they do not start growing their advances, they are going to lose market share.”

Absa deputy chief executive Louis von Zeuner told reporters: ”A tight credit policy obviously took us out of the relationship with key dealers and manufacturers and we are slowly but surely getting our way back in there.

“The decline in market share should bottom out, reaching some stability and hopefully in the second half we can get some growth back in that part of the business.”

Absa said 2011 diluted earnings per share rose 21 percent to 1,350 cents, having guided this month earnings for a rise of 18-22 percent. Headline EPS, which excludes certain items, is the main measure of profit in South Africa.

It will pay a full-year dividend of 684 cents, compared with a forecast for 600.5 cents in a Reuters pol.

Absa shares were up 0.1 at 1030 GMT.

While some analysts expected Absa to carry out deeper cost-cutting measures in 2012 to compensate for muted loan growth, chief executive Maria Ramos told reporters the bank did not have plans for major job cuts.

Despite shrinking loans, South Africa’s biggest retail bank scraped together a 5 percent increase in net interest income to 24.43 billion rand ($3.2 billion), helped by interest rate hedging.

Absa increased income from fees and commissions by 10 percent, but costs were not too far behind. Operating expenses grew 6 percent to 26.6 billion rand.


Absa said last week von Zeuner, with more than 30 years service with the bank, would step down at the end of the year to take up a role focused on increasing Barclays customer base across the continent.

While South African lenders and big Western banks are increasingly looking to do deals in fast-growing Africa, particularly in trade and project finance, Absa has yet to make a significant impact on the continent, even after Barclays acquired a 56 percent stake in 2005.

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