Absa upgrades earnings outlook and holds firm on dividends

Absa Group Limited expects to report low double-digit growth in headline earnings per share for the year ending 31 December 2025, driven primarily by a material improvement in credit quality.

The banking group anticipates a return on equity (RoE) of around 15% for 2025, up from 14.8% in 2024.

The most significant financial driver is the credit loss ratio (CLR), which is expected to improve sharply to the upper half of the through-the-cycle target range of 75 to 100 basis points (bps), down from 103 bps in 2024.

This reduction will result in lower credit impairments. The improvements stem largely from Personal and Private Banking (PPB), Corporate and Investment Banking South Africa, and Absa Regional Operations Retail and Business Banking.

Absa share price

Revenue and balance sheet outlook for 2025

Absa expects mid-single digit revenue growth for the year, with non-interest income (NIR) growing stronger than net interest income (NII).

•  Non-interest income: Strong growth in trading revenue continues to boost this line, while fee income growth remains moderate.
•  Net interest income: NII growth is expected to remain muted due to modest retail loan growth in South Africa and slight margin compression. However, NII is expected to improve in the second half.
• Costs: Operating expenses are expected to grow at a mid-single-digit rate, resulting in a slightly higher cost-to-income ratio compared to the 53.2% recorded in 2024.

On the balance sheet, the group expects its core equity tier 1 (CET 1) ratio to finish 2025 at the top end of the board’s target range of 11.0% to 12.5%. Absa plans to maintain its 55% dividend payout ratio for the year. Geographically, Africa Regions’ earnings growth is projected to be noticeably stronger than that of  South Africa.

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Future and medium-term guidance

Absa forecasts an even stronger financial position in 2026:

• ROE Improvement: RoE is expected to rise further to around 16% in 2026.
•  CLR Decline: The credit loss ratio is expected to decline further to around the mid-point of the 75 to 100 bps target range, driven by improved GDP growth and lower policy rates.
• Revenue: Reported revenue is expected to increase by mid-single digits in 2026.

For the medium-term (2027 to 2030), Absa has set a higher RoE target range of 16% to 19%, aiming to achieve a position well within that range by 2028. The group noted that this will be achieved by targeting upper single-digit NII growth, containing direct operating cost growth at mid-single digits, and ultimately aiming for a cost-to-income ratio of approximately 50% by 2028.

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