South Africa's Absa holds off on dividend, reports 58% profit drop

JOHANNESBURG: South African lender Absa said on Monday it would not declare a full-year dividend after profit fell 58%, falling behind two key rivals who managed to restore shareholder payouts in recent weeks.

After the central bank cautiously relaxed guidance advising lenders against dividends just weeks before results season, investors had been widely expecting a restoration of dividends from some lenders but were less certain about others, including Absa, whose capital position is not as strong as some peers.

"Given the group's focus on preserving capital, it did not declare an ordinary dividend for the period," Absa said, adding however it had delivered "respectable" progress against a turnaround strategy adopted in 2018 and this had good traction in some parts of the business.

Pre-provision profits, a key metric being watched by investors who want to get a sense of banks' underlying performance without the impact of hefty COVID-19 bad debt costs, rose 7%.

As well as a spike in credit impairments, South African lenders have struggled with slowing fee and loan growth and interest rate cuts.

Like others, Absa has set its sights on the rest of the continent for growth. But continental operations did not bolster earnings as they did for peers like Standard Bank. South African earnings fell 50%, compared to 54% at its African operations.

Overall it reported a 58% decline in headline earnings per share - the main profit measure in South Africa - to 730.9 cents in the year to Dec. 31, around the middle of its forecast range and compared to 1750.1 cents a year earlier.

This was driven by a 163% increase in credit impairments, which hit 20.6 billion rand.

The bank also said that, following a review of its strategy sparked by the pandemic, beyond 2021 it would place more emphasis on digital distribution, investing in a new technology architecture, and on building a diverse market footprint.