Absa Group (ABG) Trading Update summary

Operating environment and macroeconomic context

• Elevated interest rates and consumer pressure in South Africa are slowing retail credit growth, with GDP contracting and muted business activity.

• Absa Regional Operations (ARO) show more robust economic growth but face higher reserve requirements, persistent inflation, and weaker currencies.

• Weaker average exchange rates versus the rand have caused a 1%-2% drag on group revenues, expenses, and headline earnings.

Financial performance and earnings outlook

• Headline earnings for H1 2024 are expected to decrease by mid- to high single digits, with basic earnings down by high single to low double digits.

• ROE for H1 2024 anticipated around 14%, down from 15.7% a year ago; full-year ROE guidance revised to 14%-15%.

• Revenue growth for H1 2024 expected in low single digits, with high single-digit net interest income growth and a decrease in non-interest income.

• Non-interest income is pressured by lower trading income (notably Naira losses), reduced insurance income, and lower investment returns.

• Operating expenses are expected to grow at a high single-digit rate in H1, with cost-to-income ratio broadly similar to 2023's 53.2%.

Credit quality and risk management

• Credit loss ratio for H1 2024 expected to be similar to 127bps in H1 2023, with improvements in retail portfolios and higher charges in some segments.

• Full-year credit loss ratio expected to improve slightly from 2023's 118bps.

• Corporate and Investment Bank and ARO RBB expected to see increased charges, but from a low base.