Banking results season is well underway, with Absa as the latest company to report on the year ended December 2021.

If you thought the swings at group level over the past two years can be significant, wait until you read deeper and see the individual business unit performance. For example, the Vehicle and Asset Finance unit swung from a loss of R927 million in 2020 to a profit of R605 million in 2021!

Gross loans and advances increased 7% and deposits were 12% higher, so the bank has followed a cautious strategy in getting money out the door. Interestingly, credit card loans only increased by 1%! To give context to that, instalment credit grew 9% and mortgages grew 8%.

Linked to the balance sheet strategy, credit impairments fell by 59%, resulting in a credit loss ratio of 0.77%. This is way down from 1.92% in the Covid-infested 2020 financial year.

Revenue increased by 5%, with the growth driven entirely by net interest income increasing 9%. Non-interest income was flat vs. the prior year. Net interest margin improved from 4.17% in 2020 to 4.46% in 2021 as interest rates stabilised.

To give an idea of how sensitive the banks are to interest rate movements, Absa’s net interest income would change by approximately R600 million if interest rates changed by 1%. To be clear, interest rate increases are positive for banks.

Operating expense growth was just 1%, so that’s a feather in Absa’s cap for cost control, although a major contributor was high non-recurring advisory fees in the base. This helped drive an improvement in the cost-to-income ratio from 59% to 56.6%. Further down the income statement, pre-provision operating profit increased by 11%.

Thanks to the improved credit loss ratio, diluted headline earnings per share jumped by 193% and the net asset value (NAV) per share increased by 12% to R156.41. Yesterday’s closing price of R177.45 represents a 13.5% premium to NAV per share.

Absa hopes to improve return on equity to over 17% by 2024. In 2021, return on equity was 14.6%, so there’s a long way to go.

The bank declared dividends of 785 cents per share in 2021, of which the final dividend is 475 cents per share. Based on the full year dividend and yesterday’s closing price, the trailing dividend yield is 4.4%.