Absa Breaks With South African Rivals on Dividends – For Now

JOHANNESBURG (Bloomberg) — Absa Group Ltd. has opted to break with most of its South African rivals and keep preserving capital at the expense of paying dividends — but pledged to look at ways to make up for the pause when appropriate.

South Africa’s third-largest bank expects to gradually resume dividends from the first half of 2021, unlike peers who have already resumed payouts. Should loan growth fail to take off as hoped, excess capital could be returned to shareholders through a special dividend or share buyback, according to Financial Director Jason Quinn.

“Those would probably be the two preferred mechanisms we would debate,” he told reporters on Monday.

Absa’s headline earnings fell 51% to 8 billion rand ($533 million) in 2020, with the largest impact of Covid-19 coming in the form of provisions to manage loans that borrowers struggled to repay amid the pandemic crisis, it said in a statement. Pre-provision profit increased 7% to 33.5 billion rand.

The firm showed “very strong” pre-provision profit growth and is the first local bank to grow revenue faster than operating expenses in this reporting cycle, said Nolwandle Mthombeni, a banking analyst at Intellidex.

Absa has previously said it sees improving customer loan growth and a rebound in economies outside of its main market driving better growth in 2021.

The shares declined 1.5% as of 4:20 p.m. in Johannesburg. The stock has gained 11% this year, the second-best performer on the FTSE/JSE Africa Banks Index.

Dividend Dilemma
Absa’s competitors have taken diverging approaches on returning capital to shareholders. FirstRand Ltd. became the first of South Africa’s big four banks to issue a payout, following an unexpected first-half dividend announcement by smaller Investec Ltd. in November. Standard Bank Group Ltd., Africa’s largest lender, surprised by declaring only a modest dividend last week.

Although South Africa’s banking regulator eased its guidance to lenders, it’s also warned that protecting cash reserves must still take priority amid ongoing uncertainty from the pandemic.

Lenders such as Absa and Standard Bank have turned to the rest of Africa for protection from an ailing economy and record-high joblessness in their home market, intensified by the coronavirus crisis. Absa revamped its strategy to focus on the continent in 2018, after separating from former parent Barclays Plc, but remains highly exposed to cash-strapped South African consumers with retail banking accounting for most of its income.

“While there is some way to go before economies stabilize, the roll-out of vaccines globally holds the promise of greater stability,” Chief Executive Officer Daniel Mminele said.
Read More: Absa Deputy CEO Peter Matlare Dies After Battling Covid-19

Mminele, who joined the lender last year, is now pushing ahead with refreshed plans for the bank to stabilize operations, digitize channels and diversify its market reach through non-banking services and partnerships.