Barclays' Absa posts weak profit growth, sees muted loan demand

By Helen Nyambura-Mwaura

JOHANNESBURG (Reuters) - Absa Group, the South African bank majority owned by Britain's Barclays Plc, posted a small rise in first-half earnings on Tuesday and warned loan growth would be muted for the rest of the year.

South Africa's third-largest bank by market value also disappointed shareholders with a lower-than-expected special dividend. Shares of Absa tumbled 5.6 percent to 143.15 rand after the results.

Absa, the first of South Africa's "big four" banks to report earnings, said profit rose 8 percent year-on-year as bad debts declined, raising concerns among investors that underlying growth is weak.

"Certainly, the headline earnings growth of 8 percent is not fantastic. If one looks at the source of the earnings, a lot of it has got to do with cost savings," said Reuben Beelders, chief investment officer of Gryphon Asset Management in Cape Town.

"The bulk of the kick in earnings is really just the improved credit impairment (bad debt) scenario, and the market is basically saying, 'That's not really growth.'"

Demand for credit in South Africa has stayed weak as the country struggles to jump start economic activity. The central bank downgraded its economic growth forecast this month to 2 percent from 2.4 percent, and latest private-sector credit statistics show demand is contracting slightly.

Absa said it expected "mid-single digit" growth in loans and advances to customers in 2013. In the first six months, the growth was 7 percent, and net interest income increased by 5 percent to 12.5 billion rand.

Its bad debt costs fell 14 percent to 3.5 billion rand in the first half and the lender expects them to shrink further from last year's levels.

Absa, which said in February it was planning to return excess capital to shareholders, paid a special dividend of 708 cents per share, below the 750 cents the market had expected.

"The dividend is light," said Stephen Burrell, a trader at Avior Research.

CEO: GROWTH CHALLENGING

"We are committed to improving our top line income this year," Chief Executive Maria Ramos said in a presentation to analysts. "Our growth remains challenging."

With interest rates at the lowest in decades, other South African banks have made an aggressive push into unsecured lending - loans not backed by collateral - raising concerns among regulators and analysts that some loans could sour as household debt levels rise.

Absa has shied away from the riskier personal loans segment and CEO Ramos said that decision had cost it some business.

The bank said headline earnings per share, the main gauge of profit in South Africa, rose to 649 cents from a restated 599.6 cents a year earlier.

It also declared an interim dividend of 350 cents in addition to the special dividend.

South Africa's No.4 bank Nedbank is scheduled to report on August 6 and industry leader Standard Bank a week later on August 15.

Absa will start trading in Johannesburg as Barclays Africa later this week after taking over its parent's African businesses following a 18.2 billion rand deal comprising the issue of 129.5 million shares to Barclays.

Shares of Absa have fallen 12 percent this year, underperforming a 7 percent drop in Johannesburg's index of banks.

Source: http://news.yahoo.com/barclays-absa-posts-weak-profit-growth-sees-muted-124325910.html

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