Absa to report solid earnings growth, but takes hit from Ghana’s debt crisis

South African lender Absa expects to report a double-digit rise in earnings for its 2022 financial year, despite Ghana’s sovereign debt crisis weighing on its performance.

The big six bank said it will report a 10% to 15% increase in headline earnings per share (Heps) to between 2 362 cents and 2 469 cents per share, compared to the previous reporting year.

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According to the bank, earnings per share would climb between 12% to 18% to reach between 2 396 cents and 2 525 cents per share, the bank said in a voluntary trading statement for the year to end December 2022.

“Excluding the impairment charges on Ghana sovereign-related exposures, our normalised Heps for 2022 is expected to increase by more than 20%,” Absa said.

The banking group managed to increase profits in the face of its exposure to Ghana which is currently contending with major sovereign debt struggles. The overly indebted west African nation has been facing increased economic pressure and has missed large payments on its Eurobonds and commercial loans.

Last year, Ghana’s Finance Minister Ken Ofori-Atta, announced its government’s plan to undertake a debt operation programme, the Domestic Debt Exchange Programme (DDEP) to give it time to bring its debt to sustainable levels by way of exchanging existing domestic bonds for a set of four with maturation dates of 2027, 2029, 2032 and 2037.

The debt exchange plans would see 137.3 billion Ghanaian cedis or over R202 billion in local bonds exchanged for new ones, its finance ministry said in a statement.

As a result, Absa said it expects an uptick in credit impairments on Friday.

“With greater certainty on the terms of the proposed debt exchange programme with the Ghana sovereign, we expect our credit impairments to increase significantly year-on-year, mainly due to impairments on sovereign investment securities and related exposures in the banking book,” Absa said.

The bank said interest income growth, boosted in part by a recovery in life insurance revenue, has led to an increase by mid-teens in group revenue. On the other hand, it expects pre-provision profit growth in the mid-20s, helped by a single-digit growth in the bank’s operating expenses.

“Consequently, our 2022 cost-to-income ratio is expected to improve noticeably to the low 50s, in line with the first half 2022 ratio,” the bank said.

Its credit loss ratio for the reporting period is expected to be similar to the first half charge of 91 basis points when excluding Ghana sovereign-related charges, Absa said.