The ABSA credit loss ratio, which measures estimated bad debt, was above the group’s target range.
- The ABSA credit loss ratio, which measures estimated bad debt, was above the group’s target range.
- The bank says South African consumers are being pressured by significantly higher interest rates.
- ABSA is one of many suffering from a deteriorating credit ratio.
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More Absa customers are struggling because of rising interest rates, with the bank posting a trading update on Friday showing that its credit value for the first half is expected to increase “significantly”.
The bank estimated that this would bring the credit loss ratio – which measures estimated bad debt – to between 1.25% and 1.30%, well above Absa’s intra-cycle credit loss ratio target of 0.75% to 1%.
South African consumers [are] under pressure due to significantly higher interest rates,” the bank wrote in a trading update.
The bank entered 2023 with an already high credit loss ratio after impairment charges rose 61% in 2022.
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Although most of the banks that have recently published trading updates have also indicated a deterioration in their credit loss rates, Absa appears significantly outside the target range compared to the others.
In June, Standard Bank said that although double jumped nearly 50%The group’s credit loss ratio remained within its target range of 0.7% to 1%, although the South African consumer banking franchise breached its target.
Nedbank said in late June that its rate was above its full-cycle target range of 0.6% to 1%, but it started to improve slightly in May.
But while Absa’s estimated bad debt has been rising rapidly, the bank’s credit loss ratio remains well below the 1.9% it recorded in fiscal 2020. In fact, before that ratio began to climb near the upper end of the bank’s target range in 2022, Absa managed to bring it down to 0.77% in 2021.
Despite this, shares of the group were up more than 1% in morning trading Friday, though they are still down more than 9% so far in 2023.
On the bright side, Absa continued to grow its revenue in the first half of 2023, and expects to report an increase in the low teens when it publishes its 2023 interim financial results on August 14, 2023. The bank reported a mid-teens rise in net interest income, thanks to interest rates The high interest.
However, the high cost of borrowing dampened the growth in the bank’s total customer loans and deposits. But that, too, is still growing in low double digits. The bank also expects high growth in non-interest income from single digit transaction activities and insurance proceeds.