Barclays’ Absa unit slumps on profit warning

JOHANNESBURG – South African bank Absa Group stunned the market with a profit warning yesterday citing an increase in mortgage-related bad debts, sending its shares tumbling and raising fears a sector-wide recovery was losing steam.

Absa, majority owned by Barclays, which like other South African banks has been on the mend after a surge in bad debts in 2009, warned its first-half earnings could fall as much as ten per cent as bad debt costs related to mortgages increased more than it had expected.It also said revenue growth remained subdued, raising concerns that other lenders in Africa’s top economy could be set for another downturn.’It is a huge disappointment,’ said Charles Russell, an analyst at Macquarie First South Securities in Johannesburg.’They are saying it is just on the impairments on their mortgage book… I cannot imagine that is the only thing that has gone wrong. The fact that they are not growing any revenue, that is more of a pervasive thing than just relating to their mortgage portfolio.’The bank said in a statement its headline earnings for the six months to end-June would be as much as ten per cent below the R4,6 billion it reported in the same period a year earlier. Headline earnings, the main gauge of profit in South Africa, exclude some one-time items.Credit impairments related to mortgages had increased as property prices and customers remained under pressure, Absa said.It said it was struggling to improve revenue.’While our new lending volume is improving, this is only expected to become evident during the second half of 2012.’The bank reported a 20 per cent rise in full-year profit in February.South African banks had bounced back after a 2009 recession left them saddled with mountains of bad debts. Demand for unsecured debt has picked up even as lenders remain wary of mortgages.While overall loan demand has been weak, South African banks have focused on reining in costs and boosting transaction revenue.Last week, ratings agency Moody’s lowered its rating on the foreign-currency senior debt of Absa’s main lending unit, following a similar downgrade of Barclays. – Nampa-Reuters

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