On Monday, Absa’s share price gained 10 thebe, closing the day trading at P4.55 a share. Over 1 million shares exchanged hands to the tune of P4.7 million on the day.
Absa, the third largest by market capitalisation on the Botswana Stock Exchange, recorded 12 transactions after declaring an interim dividend of 9.74 thebe per share, amounting to a total dividend of P83 million.
The bank’s profit before tax grew 125 percent in the first half of 2021, a material recovery from the June 2020 position. Expected credit losses are still a significant driver in the current year’s profitability. In the first half of 2021, expected credit losses decreased significantly by 74 percent in comparison to the position seen last year. This is because of the positive outturn of macro-economic variables being better than the bank had anticipated.
Overlaying the profitability, the bank said, was also the success of collection strategies that Absa rolled out in this year. Management said expected credit losses is one-line item which they will continue to watch closely, given the uncertainties in the local environment, the performance of the economy, the success of the economic recovery transformation plan and vaccine rollout programmes. Absa views that these will significantly leverage the economic recovery and strengthen resilience of the human race against the pandemic.
The bank’s total balance sheet size has grown 14 percent, exceeding the P21 billion mark. Customer assets and customer liabilities remained the principal drivers of this growth. Net customer loans and advances have grown 9 percent year-on-year, which is a growth of more than P1 billion at a total bank level.
Despite the significant growth on the loan book, net interest income remained largely subdued and closed the reporting period at an 8 percent decline compared to last year the same time. This is on account of margin compression due to the interest rate cuts that happened in 2020. Cumulatively, Botswana has had interest rate cuts of 100 basis points and Absa cautioned that will continue to impact the performance of the book going forward.
Nonetheless, the bank said it remains optimistic about future performance of its portfolios which are still weathering the storms. Revenue diversification, product development and innovation will remain critical aspects to achieving ambition to grow and diversify the bank’s revenue base, Absa said.
As of 30 June 2021, loan loss ratios had improved materially from 2.5 percent last year to less than 1 percent in the current year. The bank’s operating expenses remained well contained and on a reducing trend for the period under review, management said, adding that operational efficiency remains a key priority for the bank as they navigate through these very challenging times.
Absa continued to manage costs on a day-to-day basis, seizing every opportunity as it arises and has seen costs perform better than last year as a result. At a total of P416 million, costs are down 7 percent year-on-year.
The significant items which have contributed to this performance is the absence of the once-off voluntary separation costs that the bank entered last year, together with the separation exercise in the brand and name change exercise. Half-year cost to income ratio closed at 58 percent, which shows a 4 percent improvement year-on-year.
Absa managements anticipates that the new ways of working will continue to change its cost mix in the short to medium term but also impact additional cost lines positively. Summation of these is what has culminated in the profit before tax amount of P290 million. Consequently, Absa have seen an improvement in return on equity, which stands at 19 percent.