Booysen: Big risks remain

Johannesburg - Despite the quickening pace of the global economic slowdown, SA's largest retail bank is looking to keep 2009 earnings in line with numbers produced in 2008.

Outgoing Absa CEO Steve Booysen told shareholders and analysts at the group's annual results presentation that Absa aims to deliver the same level of profits in 2009, at least, as the bank did in 2008.

The group reported a 20.4% increase in revenue to R42bn and headline earnings rose 10.4% to R10.6bn. Its dividend was hiked 6% to 595c for the year.

The bank's operational performance was supported by its investment-banking arm Absa Capital and its commercial banking operations that both saw earnings rise by 30% year-on-year.

"The Absa Capital and Commercial Bank story continues," said chief financial officer Jacques Schindehütte.

Absa Capital generated R2.2bn in profit with commercial banking operations contributing R2.8bn.

But analysts questioned whether Absa Capital would be able to continue to deliver such stellar performances in light of the slowing economic conditions.

Stephen Meintjes, head of research at stockbroker Imara SP Reid, said: "Despite doubling its impairment loss percentages and lower interest rate margins, Absa managed to grow its headline earnings per share and dividend - aided by 16.7% growth in advances, a lower tax rate and improved cost to income ratio. It is however very cautious for full year 2009."

Both Schindehütte and Booysen were guarded about the economic prospects of South Africa going forward. Booysen cautioned that the large current account deficit leaves South Africa vulnerable to bond and equity outflows.

Schindehütte added that while SA consumers had benefited from interest rate cuts over the last few months, the economy needed "at least another 150 basis points" over the next few months to ensure that assets - specifically housing and property portfolios - retained their values.

The retail operations, however, remained under pressure with South African consumers battling to meet their debt obligations.

The impairment charge for Absa rose 140% to R5.8bn.

Louis van Zeuner, CEO of Absa retail and commercial bank, conceded: "Impairments remain a challenge and we face an increasing risk of unemployment."

Numbers game

All of the executives who presented to shareholders and investors beat a similar drum: the size of the Absa client base.

Regular reference was made to the fact that the bank has 10m clients on its books and "one in three South Africans banks with Absa".

One division that Absa management believes could potentially benefit is its bancassurance operation. The division allows for the cross selling of various insurance products across to retail clients and, in 2008, it contributed 15% of Absa's earnings (R1.6bn).

While Absa has committed itself to match its 2008 earnings, Booysen cautioned that there are a number of risks to an economic recovery in South Africa - including risk aversion to emerging markets: "We could easily enter a phase of negative growth," he said.

- Fin24.com