Absa sounds warning on energy prices, rand, as profits climb to record

Absa Group has warned that “a prolonged bout of military action in the Middle East could see energy prices higher and for global risk appetite to wane”, which “would likely translate into a weaker path for the rand, somewhat higher inflation, a more cautious approach to interest rate cuts by the Reserve Bank, and somewhat weaker economic growth”.

Despite some market speculation, it sees “the bar for the Monetary Policy Committee to reverse course on rates as quite high and thinks it very unlikely that the global environment would trigger the onset of a rate hiking cycle”.

Before the recent military action against Iran, the lender had forecast South African GDP growth of 1.9% this year. Along with this, it saw a further 50 basis points in interest rate reductions over the next nine months, with “further recovery of household balance sheets, a more robust employment market and gradually strengthening consumer and business confidence”.

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Absa says, “the global economic environment remains very difficult to predict as US economic and diplomatic policy is expected to remain volatile, and the uncertain nature of the armed conflicts in the Middle East and in Ukraine poses significant economic and market challenges of their own”.

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The bank, under new leadership in Kenny Fihla (ex-Standard Bank), reported record headline earnings for the year to 31 December of R24.76 billion, a 12% increase on 2024. This growth was largely driven by the 51% jump in profits from its Africa Regions business, excluding corporate and investment banking (CIB) operations, which are consolidated.

With CIB included, earnings outside of South Africa still grew by 25% to R7.8 billion, far outpacing the 7% growth in South Africa (to R17 billion). In its home market, personal and private banking (PPB) grew earnings by 7%, while business banking (BB) saw profits decline by 8%. Profit at its CIB business, which was up 14% to R13 billion, comprised nearly half of overall headline earnings.

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The bank restructured its business halfway through last year, effectively dismantling the structure put into place by previous CEO Arrie Rautenbach. It announced that he would take early retirement in mid-October 2024 and serve a contractual six-month notice period in garden leave.

From June, the Product Solutions Cluster (comprising home loans, vehicle finance and insurance), Everyday Banking and Private Wealth Banking were integrated to form PBB, while Relationship Banking (excluding Private Wealth) was renamed BB. These changes were driven by a shift in strategy towards being customer-led and the acceleration of its Pan-African operating model.

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Staff costs, which increased by 8% to R36.4 billion, were the largest driver of the 6% growth in overall expenses (versus a 5% increase in revenue). This saw its cost-to-income ratio increase from 53.2% in 2024 to 53.8% in 2025. By 2028, it has guided that this will “approach 50% by 2028,” which will be a “key driver” of it achieving its return on equity (RoE) within its medium-term target range of 16% to 19%. In 2025, it reported RoE of 15%.

Absa says, “excluding further major unforeseen political, macroeconomic, or regulatory developments”, its guidance for 2026 is “largely unchanged”. It expects “mid-single digit revenue growth, with non-interest income growth above net interest income”.

It says it expects its credit loss ratio to improve slightly from the 88 basis points in 2025 to “the bottom half of our 75bps to 100bps through-the-cycle target range”. It does say that it expects “rand appreciation to be a headwind to group revenue and earnings in 2026”.

More to follow ….

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