Absa Group shares rise 4.2% following positive trading update

Absa Group's share price increased 4.2% Monday morning after it reported that its second half performance was in line with their expectations and largely in line with guidance, while impairments would decline.

Second half trends were in line with expectations, and with the group's guidance from August 18, 2025, as well as the outlook for 2026 and the medium-term targets, the bank said in a voluntary update Monday.

The share price was up 4.2% to R225.69 on Monday morning on the JSE, an increase that made Absa the biggest mover on the market at the time, and a price that was 13.9% higher than that R198.26 price at the same time last year.

For the 2025 financial year, "we expect mid-single digit revenue growth, with stronger growth in non-interest income than net interest income. Net interest income growth will remain muted, due to modest retail loan growth in South Africa and slight margin compression," the bank directors said.

However, "it will improve in the second half." Mid- to high single digit customer loan growth was expected, driven by strong second half growth in wholesale lending, and mid-single digit deposit growth.

Within non-interest income, fee income growth remained moderate, net insurance income was lower given the disposal of the insurance business in Africa Regions, while trading revenue continued to grow strongly.

The credit loss ratio was expected to improve to the upper half of the group's through-the-cycle target range of 75 to 100 basis points (bps), from 103 bps in 2024, resulting in lower credit impairments.

Improvements in Personal and Private Banking (PPB), Corporate and Investment Banking (CIB) South Africa and Absa Regional Operations Retail and Business Banking (ARO RBB) were expected to offset increased charges in Business Banking (BB) and CIB ARO.

"We expect mid-single digit growth in operating expenses, producing a slightly higher cost-to-income ratio than our 53.2% in 2024 and low to mid-single digit growth in pre-provision profit."

Cost savings would offset higher performance cost growth. Consequently, return on equity (ROE) was expected at around 15% from 14.8% in 2024, with headline earnings per share growth in the low double digits, they said.

Other reserves had increased equity more than expected, reducing ROE while supporting the bank's NAV.

"We expect a weaker average rand for the period to underpin earnings slightly and Africa Regions earnings growth should be noticeably stronger than South Africa," the bank directors said.

From a divisional perspective, strong ARO and RBB earnings growth, continued momentum in CIB and a smaller head office loss were expected to drive group earnings growth, outweighing moderate PPB growth and lower BB earnings.

The bank forecasted improved GDP growth across all key markets in 2026. "We expect far stronger GDP growth from our Africa Regions countries than South Africa, although Rand appreciation is likely to be a headwind for Group revenue and earnings next year," they said.

Revenue growth was expected to improve in constant currency, but remain moderate in 2026, with reported revenue increasing by mid-single digits. Net interest income growth should improve somewhat, given mid- to high single digit loan growth.

"Non-interest income is expected to exceed net interest income slightly, given solid growth across CIB and Africa Regions, while BB and PPB growth improves."

The bank expected mid-single digit cost growth in 2026, producing slightly positive JAWS (income growth exceeding cost growth) and better pre-provision profit growth.

"We expect continued improvement in our retail charge in South Africa, given far better early arrears at present. These drivers should generate an ROE of around 16% in 2026," the bank said.

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