27four Investment Managers
24th August 2021
ABSA leads the race to reach pre-Covid earnings level
Financial results of SA’s big retail banks are coming in and most show that while the worst may have been averted, the road to full recovery is going to be a protracted one.
Absa which grew its diluted normalised headline earnings per share (Heps) by 487% is the star performer so far. It is also the only bank whose interim earnings rebounded to above pre-Covid levels. Standard Bank and Nedbank are still far below their 2019 levels despite swelling their interim diluted Heps by 52% and 146% respectively. We are keenly waiting for FirstRand to release its annuals to end-June.
The rebound in banks’ earnings is being driven by significant decreases in impairments across the board. For instance, a favourable reduction in bad debts contributed almost all of Nedbank’s 146% growth. There is also a lot of base effects in the numbers as the banks were restricted from offering certain services during the last three months of the comparable interim period.
Perhaps the most encouraging trend from the results is the improvement in the quality of the banks’ books. Most banks saw their credit loss ratios receding to within their through-the-cycle range, something which we did not expect to happen this fast.
That said reaching pre-Covid levels (end of 2019) once the rebasing effects are out of the system may take a while for most banks given SA’s tepid economic trajectory. As shown on our chart of the week below, most banks’ trailing 12-months earnings (TTM) are still far off the 2019 mark. Nedbank expects its diluted Heps to reach its pre-Covid level only in 2023. Banks thrive when the economy is doing well. While most banks in the sector have been rolling out self-help internal initiatives to support their margins, they need a strong economy to flourish.
Source: Profile Data, companies financials and own calculations
*Capitec’s results are for the full year to end-Feb while FirstRand’s are at end-December.