Absa Group interim results for the six months ended 30 June 2008.

Summary of the Group’s financial performance
* 21,3% increase in revenue;
* 7,0% decline in earnings from the retail banking operations;
* 19,2% strong growth in customer deposits
* Robust growth of Absa Capital and Absa Corporate and Business Bank earnings

The Absa Group, a subsidiary of Barclays Bank PLC, today announced its interim financial results for the six months ended 30 June 2008.

The Group’s headline earnings for the six months to 30 June 2008 increased by 8,4% from R4 365 million to R4 731 million. Headline earnings per share increased by 7,5% to 700,3 cents and fully diluted headline earnings per share grew by 9,2% to 666,2 cents per share. Attributable earnings increased by 22,3% to R5 335 million. Earnings were enhanced by a once-off profit from the Visa Inc (Visa) public offering which resulted in an initial after tax profit of R636 million.

The Group recorded an average return on equity of 24,6% and an interim dividend of 265 cents per share was declared, representing a growth of 10,4%.

Business Commentary
Absa Capital delivered another robust performance, growing its earnings by 32,2%. Absa Corporate and Business Bank (ACBB) and the Bancassurance business also posted strong operational performances, but earnings growth of 14,6% and 0,3% respectively, were impacted by lower returns on their investment portfolios.

Challenging market conditions for consumers affected the retail business, which recorded lower earnings for the period. With interest rates and inflation at their highest levels in five years and real disposable income declining, household budgets have experienced considerable financial strain. This has resulted in a decline in consumer credit quality as reflected in rising accounts in arrears and a slowdown in volumes’ growth in the retail business. Progress with the Group’s strategy of diversifying its earnings, however, has resulted in growth within the wholesale business largely offsetting the downturn experienced in the retail cluster.

“These results are evidence of our resilience under tough macroeconomic conditions, as the strategy of diversifying the Group’s earnings continues to deliver results. Under current trading conditions, we continue to maintain a heightened focus on risk management while exploring profitable opportunities available in Investment and Commercial banking.” says Steve Booysen, Absa Group CE.

Balance sheet
The Group’s asset base as at 30 June 2008 increased by 33,2% to R737,6 billion.

Loans and advances to customers increased by 17,9% to R489,3 billion. Growth in retail advances slowed to 14,4% as higher inflation and interest rates negatively impacted consumer demand. ACBB, however, increased advances by 34,0% as a result of the strong growth in the Large and Medium Business segments.

The Group remained well capitalised above the board target ratios for Tier 1 capital of 8,75% and total capital of 12,0%. Capital levels as at 30 June 2008 were 11,4% for the Group at Tier 1 and total capital of 13,9%.

Income statement
Net interest income increased by 19,2% to R10 220 million, mainly due to growth in total advances. The net interest margin on average interest-bearing assets declined 9 basis point to 3,66% as pressure on wholesale funding costs continue.

Non-interest income increased by 23,5% to R10 030 million with net fee and commission income, which constitutes approximately 60% of non-interest income, increasing by 8,5%.

Credit impairments as a percentage of total advances increased to 0,93% from 0,49% in June 2007, largely as a result of a sharp increase in retail credit impairments, which increased to 1,21% from 0,65%. Impairment charges relating to investment and commercial banking remained well contained.

Revenue growth of 21,3% exceeded growth in operating expenses and resulted in the cost-to-income ratio improving from 52,8% to 49,3% (51,2% excluding the Visa profit).

Business unit performance

Retail banking – Attributable earnings down 7% to R2 012 million
A slowdown in consumer demand for lending products, transaction volumes as well as a sharp rise in impairments negatively impacted the retail banking performance. Customer numbers, however, continued to grow to over 9,3 million customers and deposits also grew a robust 30,3%. Market share statistics as at May 2008 indicate that Absa has the largest share of the individual deposit and advances market in South Africa.

ACBB - Attributable earnings up 14,6% to R1 039 million
The commercial banking business experienced robust operational performance as the large and medium business lines grew advances strongly. Asset and deposit margins also widened, while impairments remained low. The underlying growth, however, was diluted by a sharp decline, of R259 million, in the value of the listed commercial equity investments as a result of volatile markets.

Absa Capital – Attributable earnings up 32,2% to R1 001 million
Absa Capital delivered another solid performance largely due to an 84,8% and 45,1% increase in revenue across its Secondary and Primary Markets business units respectively. Key drivers of this growth were further refinement of its operating model and continued improvement in technology, products and distribution.

Bancassurance - Attributable earnings of R752 million
The bancassurance operations posted flat attributable earnings of R752 million for the period under review. The results are underpinned by a strong operational performance, which grew by 21,5%, but was adversely affected by investment income on shareholders’ funds, which declined by 55,8% as a result of volatile equity and bond market performance.

Earnings from other African countries increase 37,5% to R110 million

Absa has banking operations in Angola, Mozambique and Tanzania and, in addition, explores profitable opportunities on the African continent through initiatives by each of its business clusters and by leveraging the Barclays brand. This will be enhanced significantly by the agreement with Barclays that Absa Capital will lead the investment banking initiatives in sub-Saharan Africa. Absa Capital will work closely with Barclays Capital to bring Barclays Capital global product expertise and distribution capabilities to sub-Saharan customers. A number of Bancassurance initiatives have also commenced and are yielding promising results.

Strategic focus

The Group remains focused on its long-term strategic goal of being the best financial services provider in South Africa and selected African markets. The diversification of revenue streams by offering a full suite of products to the market and maximising cross-selling opportunities between business clusters is fundamental to the achievement of this objective. Successful diversification will enhance earnings performance through economic cycles, hence the Group’s objective to grow the wholesale businesses to 50% of the total Group earnings by 2012. The Group is focusing on four key strategic deliverables:
•strengthening market leadership in retail financial services;
•accelerating growth in the commercial business;
•building the leading investment bank; and
•growing the wealth management capability and reputation.

Prospects
Consumers are expected to remain under pressure as higher debt servicing costs and increases in the general cost of living continue to erode disposable income into 2009.

Against this backdrop, the Group is likely to experience higher impairments within the retail portfolio. The promotion of product offerings such as deposits, transactional banking and advisory services as well as focused risk mitigation measures to protect and enhance the underlying value of the Group, remain priorities in the current environment.

In conclusion Booysen said: “Given the uncertain outlook for the global banking environment, volatile markets, and a higher than anticipated inflation and interest rate environment in South Africa, the headline earnings growth of the Group for the full year is expected to be close to the growth percentage achieved in the six months to June 2008.”