UPDATE: FirstRand,Absa Say Earnings To Fall As Economy Cools
June 23 2009 - 6:44AM
Dow Jones News
South African banks have been hard hit by bad debts and
investment impairments as the country is gripped by its first
recession in 17 years, with FirstRand Ltd. (FSR.JO) and Absa Group
Ltd. (ASA.JO) warning Tuesday of sharp declines in profits.
The country's largest lenders are, however, expected to remain
profitable and have said they remain strongly capitalized.
FirstRand in a statement to the Johannesburg bourse said its
full-year earnings-per-share to June 30 are expected to have fallen
by between 39% and 44% from 218.2 cents ($0.26) a year ago.
Earnings at its Rand Merchant Bank investment banking arm are
expected to be down by 50%-55%, it said.
Absa, which is majority owned by U.K.-based Barclays PLC (BCS),
separately said its EPS for the half year to June 30 is likely to
be between 25% and 35% lower than a year ago.
The forecasts echo predictions from rivals Nedbank Group Ltd.
(NED.JO) and Standard Bank Group Ltd. (SBK.JO), Africa's largest
lender by assets.
At 1004 GMT, FirstRand shares were down ZAR0.54, or 4% at
ZAR12.86, while Absa was ZAR2.13 lower, or 2.2% at ZAR98.75.
"The real economy is slowing down rapidly, with consumers and
small businesses stressed and job losses becoming a reality," said
Paul Harris, who will retire as FirstRand's chief executive at the
end of the year and be replaced by Sizwe Nxasana.
The deterioration in the domestic and global macro environment
has "played out even more negatively" than previously expected,
Harris said in the text of a speech to shareholders.
South Africa's economy contracted an annualized 6.4% in the
first three months of the year, the most since 1984, after
shrinking 1.8% in the final quarter of 2008. At the same time,
inflation has been cooling, which has prompted the central bank to
cut its benchmark interest rate four-and-a-half percentage points
since December.
Absa, which operates South Africa's largest retail lender, said
it has been knocked by increasing impairment levels, a contraction
of interest margins and a reduction in the value of investment
portfolios.
"The group and bank remain capitalized well above the minimum
regulatory requirements and above board-approved targets," it
said.
FirstRand, meanwhile, said its First National Bank and WesBank
units have been affected by declining asset growth and further
increases in bad debts, which is on top of the negative impact of
falling interest rates. It said impairments remain in line with
expectations, and its bad debt ratio is expected to be between 175
and 185 basis points for the year.
FirstRand is scheduled to report its annual results Sept. 15,
and Absa its first-half results on Aug. 3.
-By Robb M. Stewart, Dow Jones Newswires; +27 11 783 7848;
robb.stewart@dowjones.com