Absa Group, one of South Africa’s biggest banks, reported a 10% jump in headline earnings for 2024, reaching R22.1 billion ($1.2 billion).
The improvement was driven by a stronger second-half performance after a sluggish start to the year.
The lender attributed the turnaround to lower loan impairments, improved consumer spending, and a stabilizing business environment, particularly in its home market.
While the first half was weighed down by rising defaults and a weaker operating climate, a rebound in economic activity in the latter part of the year provided support.
Revenue rose to R109.9 billion ($5.9 billion), while impairments fell to R14.3 billion ($784.5 million), easing pressure on profitability and supporting earnings growth.
“Our organization rallied in the second half, refining our focus areas to ensure that our actions are targeted and precise in generating value and earnings uplift,” said interim chief executive officer Charles Russon in a press statement on Tuesday.
Absa’s improved performance coincides with South Africa’s exit from contraction in the fourth quarter of 2024, when GDP expanded by 0.6% following a 0.1% decline in the previous quarter.
The recovery was fuelled by stronger household spending, a rebound in retail activity, and fewer power cuts, which helped restore business confidence.
Retail sector rebounds as loan impairments decline
A key driver of Absa’s improved performance was the reduction in bad loans, particularly in its retail banking segment. The bank’s credit-loss ratio improved to 1.03%, reflecting a drop in defaults as consumers regained financial stability.
While this remains above Absa’s target range, it marks a significant improvement from the first half, when higher impairments weighed on earnings.
“Key structural improvements, including disciplined risk management, cost efficiencies, and optimized capital allocation, are starting to translate into improved results,” Russon noted.
“Our stronger second-half performance gives us confidence that we are taking the right action to support the delivery of a 16% return on equity by 2026.”
The lender also benefited from a stronger retail sector, as improving consumer confidence lifted spending and reduced credit stress. Companies such as Shoprite Holdings and Nedbank Group also reported improved earnings, pointing to broader stability in the financial and consumer markets.
Challenges remain in other African markets
Despite its stronger performance in South Africa, Absa faced challenges in other African markets, particularly Ghana, where hyperinflation exceeded 100% over a three-year period. This led the bank to classify Ghana’s economy as hyperinflationary, reducing its profit after tax by R653 million ($35.8 million) in Q4 2024.
Additionally, higher cash reserve requirements in certain African countries weighed on the bank’s net interest income growth, which slowed to 4.5%, down from 21% a year earlier.
Outlook for 2025
Looking ahead, Absa expects continued earnings growth, supported by disciplined capital allocation and a stabilizing credit-loss ratio.
The bank projects further improvement in retail credit quality, driven by South Africa’s ongoing economic recovery.
However, it remains cautious about macroeconomic risks in its other African markets, particularly currency volatility and inflationary pressures.
“As we build on the momentum of our recovery, we are focused on sustained, profitable growth—ensuring we continue to create meaningful value for our customers, colleagues, and shareholders across the continent,” Russon noted.