Absa Warning Casts Doubt on S. African Banks’ 2020 Dividends

JOHANNESBURG (Capital Markets in Africa) — Absa Group’s warning that it may scrap its dividend for 2020 is unlikely to be the last from South African banks hard hit by the fallout from the coronavirus pandemic.

“Banks won’t have certainty on their capital and liquidity positions until later in the year,” Nolwandle Mthombeni, an analyst at Mergence Investment Managers in Cape Town, said by phone. “So they might take a prudent approach.”

While South Africa’s four biggest lenders have indicated they will weigh the central bank’s request that they suspend ordinary dividends this year — all but eliminating first-half payouts — Absa is the first to cast doubt over its final 2020 dividend. The Johannesburg-based lender said in a statement on Tuesday it is seeking to preserve capital as the economy reels from one of the world’s harshest lockdowns to contain Covid-19.

Absa’s comments come as the company predicts a drop of more than 20% in first-half normalized earnings, which strip out accounting adjustments. Its business units were substantially affected by lockdown measures in South Africa, with credit impairments in the first four months of the year doubling from a year earlier.

Nedbank Group on May 22 also said it expects first-half profit to fall by at least 20% as impairments “rose steeply,” lending slowed and lower interest rates weighed on revenue and margins.
Smaller rival Capitec Bank Holdings withheld its final dividend for the year through February in April, while specialist lender Investec said last week it won’t make a final dividend for its March year-end. FirstRand Ltd., the continent’s biggest bank by market value, has a June annual financial close.

Standard Bank Group and Nedbank, which like Absa have a December year-end, said in separate statements last month that they’ll consider the regulator’s recommendations on dividends and cash bonuses when the issues are deliberated on, typically after the financial year closes.

African Expansion
In the past two years Absa, which expects South Africa’s economy to contract by 10% this year, has pushed to expand in the rest of the continent after its former parent Barclays Plc sold down its controlling stake.

While it is not yet clear how the new operating environment will affect Absa’s long-term strategy, the bank remains focused on preserving its capital and liquidity, Chief Executive Officer Daniel Mminele said on a conference call.

“All our decisions at the moment will be taken through that lens to make sure we play to that objective,” he said.

Absa’s shares have declined 45% this year, the worst performer in the five-member South African banks index after Nedbank, which is down 56%.

Source: Bloomberg Business News