Absa Group Limited (AU61.F) Earnings Call Transcript & Summary

Good morning, and thank you for joining us for Absa's 2025 Interim Results Presentation. It is a real privilege for me to present for the first time as Group Chief Executive. Our presentation will start with Charles covering the operating environment and how we fared on our strategic execution priorities in the first half. It is appropriate that he provides this context given that he led the group as Interim CEO for most of the period. Charles will assume a very senior role at Absa, which we will announce shortly. Deon will then unpack our financial performance and set out our guidance for the rest of 2025. Thereafter, I will share my thoughts on the organization, and then we will field questions. Before handing over to Charles, I want to acknowledge his efforts and that of the management team over the past 6 months in delivering these results. They have steered the organization through a challenging period, including a tough economic macro environment, especially in South Africa to deliver on the objectives for the half. Thank you. I will now hand over to Charles.

Thank you, Kenny, and good morning, everyone. Starting with the macro backdrop. As you are all aware, the operating environment remains volatile, uncertain and tougher than we expected. But of course, we all operate in the same environment. The global economy entered 2025 on an uncertain footing as the new U.S. administration heralded an unprecedented flurry of highly consequential domestic and global policy announcements, including dramatic increases in tariffs on goods entering the U.S. The U.S. Federal Reserve left policy rates on hold, whereas the U.K., the EU and many other Western countries cut rates, while China introduced several measures to support economic growth. In addition, geopolitical tensions remain significant with the conflicts in Ukraine and the Middle East continuing. In South Africa, economic data has disappointed with just 0.1% first quarter GDP growth. Business and consumer confidence slipped early in the year, given noticeable tensions within the government and national unity with two failed attempts to agree a national budget, and as trade tensions with the U.S. ratcheted higher. On a positive note, consumer inflation remained low through the first half of the year, providing space for the Reserve Bank to continue reducing rates. Economic growth was mixed across our African markets. Ghana's economy has strengthened further with strong gold export revenue supporting a sharp rally in the cedi, resulting in rapidly decelerating inflation and a large policy rate cut. Zambia's economy is also rebounding from last year's devastating drought, whilst East African markets continue to perform strongly even as fiscal concerns remain for Kenya with lingering social tensions and an inability to raise tax revenues. Meanwhile, the crisis in the global diamond industry impacted Botswana's economy, deepening the country's fiscal challenges. And the fiscal crisis in Mozambique also continues to weigh on the economy. Except for Ghana, we have reduced our growth expectations for all countries in which we operate, some of them materially relative to what we planned in our original 2025 budgeting. Despite these cuts, we still expect 4.8% growth across our African regions countries this year, well above South Africa's muted growth. Moving on to our first half results. Looking at the salient features of our interim results, we continue to deliver on our market guidance. Diluted HEPS grew 16%. Dividends per share grew 15% based on a 55% payout ratio. Importantly, our ROE improved to 14.8%, albeit slightly below our 15.1% cost of equity for the period. Net interest margin narrowed by 11 basis points year-on-year, mostly due to compression in our deposit margin, but having stabilized since the second half of 2024. Muted net interest income, an industry-wide trend, meant costs grew faster than revenue, producing a slightly higher cost-to-income ratio. Pleasingly, our credit loss ratio improved materially off an elevated base to the top end of our target range. NAV grew 11% to ZAR 200 per share, in part due to higher reserves that was also a drag on ROE. Lastly, our CET1 capital ratio declined slightly to 12.5%, but remains at the top end of our Board target range. While our earnings increased materially and our RoE improved, we continue to focus on our recovery given that our ROE remains below our cost of equity. You should expect further improvement from here. We aim to improve our execution and consistently deliver on our guidance in the immediate, short and medium term to regain investor confidence. I will now cover our first half execution. In line with what I referenced in March, I will update you on the progress of our four strategic execution priorities. Firstly, in terms of sustainable franchise-driven growth, the half showed disciplined balance sheet growth and improved risk origination, a focus on client profitability while staying true to reducing the delinquency back book. We have embedded return targets as a priority in business unit scorecards to ensure we are originating the right business with an increased focus on transactional activity. Growth in our active transactional customers in Personal and Private Bank, PPB, was 4%, while digitally active customers grew 13%. Absa Reward customers increased 40%, which in due course will help drive greater usage and result in fee income. In ARO RBB, we grew new-to-bank transactional customers 15% as digital onboarding and partnering agents supported our ability to acquire customers. Finally, and pleasingly, across the region, we saw growth of 32% in digitally active customers as upgraded digital platforms increased usage and customer engagement. Secondly, we are driving the pivotal change across the organization from product focus to client franchise focus with product excellence. We concluded the reorganization of Personal and Private Banking on 2 June, bringing everyday banking, product solutions, Private Bank and Wealth together into a single client segment focused on our retail customers in South Africa. This also resulted in a now refocused business banking segment. These teams have prioritized the management mindset shift required to ensure we focus on ultimately delivering client value, having removed the ultimate -- the artificial barriers across the client segment, which we believe will provide sustainable franchise benefits over time. Our CIB and business banking teams are now fully managing their client segments from a client franchise lens regardless of where the product sits with revenues following client, which ensures that we take a holistic view of our client to deeply understand their needs such that we show up in the right way regardless of where the product sits in the firm. This significantly raises our own expectations of the business coverage teams to ensure client relevance as we seek to provide value to our clients. Thirdly, we invested further in the capital allocation capability at both group and business unit levels and have redefined the top-down capital allocation processes across the group to better measure the performance of each business. As we drill down, we expect to spotlight areas of value or drag as we bring in the client franchise lens. These processes will continue to mature. We have already commenced the build-out of our customer profitability analytics in PPB, which has a strong data foundation and will require some modest investment as this lens becomes a primary lens in our decision-making. We have further increased the capital allocation rates for each business unit to 12% of RWAs, which closer aligns each business unit's return on regulatory capital with the group ROE. This reduces the ROE drag from the head office. Furthermore, we have also reallocated certain costs that are directly attributable to each business unit's activity to better measure and understand the franchise value. And finally, on 21 July, we successfully concluded the buyback of our preference shares, which will reduce our cost of funding going forward. And lastly, and of great importance, we remain on track with our productivity program with close to half of the ZAR 5 billion benefits delivered to date. Deon will speak further to this point in his section. I will now look at each business unit's performance. Unpacking our segmental performances, all divisions grew earnings besides Business Banking. CIB maintained its positive momentum, again benefiting from its diversification with a strong showing from the Investment Bank. Earnings in our newly established Personal and Private Banking business continued to recover, driven largely by lower credit impairments as revenue growth remained muted. Business Banking earnings declined due to a combination of higher credit impairments and lower pre-provision profit given flat revenue growth. We expect a better revenue-driven performance from this business medium term. ARO RBB maintained strong positive underlying momentum with pleasing growth in customers and revenue. The reduced loss in head office largely reflects higher earnings in Treasury South Africa and discontinuing hyperinflationary accounting in Ghana this year. Moving on to individual businesses. Starting with our largest franchise, CIB. As usual, we show CIB's earnings by activity and region, although it is run on a pan-African basis. Corporate Banking earnings declined 7% as pre-provision profit decreased 9% given lower revenue, partially offset by a material pullback in credit impairments. Highlighting the benefits of diversification, the Investment Bank earnings grew 20% on the back of strong pre-provision profit growth and 30% lower credit impairments. From a geographic perspective, CIB South Africa grew 16%, largely due to credit impairments and strong markets growth. Conversely, significantly higher credit impairments from a prior year net reversal in the base constrained CIB's earnings growth to 3%. Now I will cover our new PPB business. PPB's earnings grew materially driven by 16% lower credit impairments. Margin compression and modest loan growth production resulted in lower net interest income, which offset improved noninterest income growth, resulting in lower pre-provision profit. Negative operating jaws produced lower transactional and deposit earnings. However, earnings across the lending franchises continued to recover with substantial rebounds in vehicle and asset finance and unsecured lending due to significantly lower credit impairments outweighing muted top line growth. Insurance SA earnings rose 12%, improving its ROE to 21%. Life profits increased 5%, while Non-Life grew 25%, mostly due to improved claims. Business Banking. Our Business Bank performance disappointed as earnings declined 12% on 23% higher credit impairments and 7% lower pre-provision profit given flat revenue. Revenue was under pressure as a result of muted demand for credit, margin compression from higher interest and suspense and deposit mix plus reduced transactional revenue and lower cash volumes. Positively, card acquiring revenue grew 9% on 7% volume growth. And lastly, ARO RBB. ARO RBB earnings grew significantly as the banking operation maintained its strong underlying franchise momentum in transactional customers, revenue, pre-provision profit and earnings. Unlike last year, when the strong rand was a material drag on ARO RBB's earnings, this year, it was a tailwind, although earnings still grew 28% in constant currency. As you know, we switched to a bancassurance distribution model with key partners across our Africa regions. Hence, we sold our insurance businesses in Botswana, Zambia and Mozambique during the period, resulting in a small earnings drag for the half. Finally, let's look at the geographic performance. From a geographic perspective, South Africa and Africa regions both produced solid earnings growth. However, it is clear the South Africa's 19% earnings growth mainly reflects lower credit impairments with revenue growth remaining muted at 3% with flat net interest income. As a result, pre-provision profit was flat. And whilst return on regulatory capital improved to 14.3%, it still remains below cost of equity. By contrast, Africa regions delivered strong growth in pre-provision profits, which generated a 16.9% return on regulatory capital despite higher credit impairments. For the full year, we expect the diversification benefit from our African regions to continue with noticeably stronger earnings growth than from South Africa. I will now hand over to Deon to take you through our financial performance and guidance for the rest of the year. Thank you for your attention.

Thank you, Charles, and good morning, everyone. I will unpack our interim results before closing with our guidance. Starting with our income statement drivers. Headline earnings grew 17% to almost ZAR 12 billion. Earnings growth was due to increased pre-provision profit and lower credit charges. A weaker average Rand increased earnings slightly during the period. Net interest income grew 3%, reflecting 5% higher average interest-bearing assets and slight margin compression. Noninterest income rose 10%, with most businesses producing resilient growth. Total revenue grew 5% to ZAR 56 billion. Operating expenses increased 6%, which was mostly inflationary, resulting in slightly negative operating jaws and 4% higher pre-provision profit. Our credit impairments decreased 14%, driven by lower charges in PPB and CIB. Other includes several items such as a slightly higher effective tax rate, no longer applying hyperinflationary accounting to Absa Bank Ghana. Turning to net interest income. As expected, overall growth was modest at 3% and was similar to our 2% growth in the second half of last year. Growth remained slow in PPB due to muted loan growth and margin compression in unsecured lending, while secured lending margins held up well. Business Banking NII slowed noticeably, reflecting slower loan growth, higher interest in suspense and margin compression. ARO RBB's 15% growth was strong on the back of 9% loan growth and improved margins as the cash reserving drag reduced. Net interest income in CIB grew 3% with its ARO NII rising 9%, while South Africa declined 1% due to margin contraction. South Africa's NII was flat due to margin compression, while Africa regions grew 9%, given a more resilient margin. Our overall net interest margin declined 11 basis points to 4.58% as compared to June 2024. However, it was stable relative to the 4.57% in the second half of 2024 when most of the compression occurred. This stability reflects some of the hedging protection conducted at a group level against lower rates, which was evident in the first half of this year. Customer loan pricing had a 5 basis points negative impact from tighter pricing and higher suspended interest in business banking. Changes in the loan mix were a small drag given faster loan growth in CIB than unsecured lending in PPB. Customer deposits reduced the overall margin by 17 basis points, reflecting pricing pressure, particularly in Corporate Banking SA. Deposit composition was slightly positive given lower wholesale funding and faster growth in higher-margin deposits in ARO RBB. Lower policy rates reduced the deposit endowment by 6 basis points. The equity endowment impact improved by 3 basis points. In South Africa, it reduced the margin by 3 basis points given lower rates, while Africa regions improved it by 6 basis points due to growth in equity. In South Africa, the charge from our structural hedge was 8 basis points less, offsetting the South African deposit and equity endowment underlying movement. The average structural rate earned on the program increased 14 basis points to 7.25% and is now higher than JIBAR. Turning to our balance sheet. Deposit growth remains broad-based with strong growth continuing in CIB and ARO RBB. PBB (sic) [ PPB ] growth remains solid due mainly to faster growth in low-margin deposits. Business Banking's growth was due to 9% higher transactional products. ARO RBB reflected strong growth in transactional products. CIB grew 15% or 10%, excluding significantly higher tax and loan deposits, largely in investment deposits given client buildup of surplus liquidity. Our total loan growth remained relatively moderate at 7%, with a large portion of the growth coming late in the half. PBB's muted growth reflects active risk management decisions and increased competition in a market that's growing slowly. Business Banking saw mid-single-digit growth across most segments and sectors. Agri loans, the largest component, was impacted by a delayed season, although it grew strongly in July. ARO RBB loans grew 9% with growth across mortgages, card and mobile lending. CIB increased 12%. However, excluding reverse repos, it grew 6% with broad-based growth in general corporate, infrastructure and commercial property finance. Despite PBB's muted loan growth, our retail market share in South Africa remained broadly stable at 22%. Low home loans growth reflected a subdued market. Production decreased 8% given competition and our shift towards higher-quality customers. Vehicle and Asset Finance growth reflected improved production and an industry-wide recovery in car sales. Within unsecured lending, credit cards grew 3%, given higher utilization, while limit increases reduced. Personal loans declined 4% due to lower production aligned with strategic risk management actions. Unpacking our noninterest income, it grew 10% to account for 36% of group revenue. Net fee and commission income grew 5%, representing 2/3 of the total. Within that, gross fee and commission income rose 7% as transactional fees and commissions increased 4% and merchant income grew 27%. Net trading income, excluding the impact of hedge accounting, grew strongly given substantial Markets SA growth. Excluding base effects, growth was still strong at 25%. Net insurance income rose 5%, driven by strong growth in Non-Life, while Life Insurance declined slightly due to lower unsecured loan production. Other fell materially because of lower income from unallocated funds and losses on disposal of assets and liabilities held for sale under IFRS 5. Operating expenses grew 6%, resulting in a slightly higher cost-to-income ratio of 53.2%. Staff costs rose 7%, largely due to inflationary salary increases with higher growth rates in ARO due to higher inflation. Non-staff costs grew 5%, moderated by the efforts of the productivity program. IT costs increased 7% and Pro fees 6%, given further investment in new digital capabilities and cybersecurity. Amortization of intangible assets grew 3%, helped by higher base effects. Marketing cost growth also reflects inflationary growth. Growth in property costs and depreciation were low, given continued optimization of our property portfolio that offset retail branch upgrades. Our productivity program remains on track with delivery of ZAR 700 million of cost savings in the first half that helped contain non-staff cost growth. The savings were broadly spread across third-party spend, property optimization, channels and technology. Some of this was reinvested in new digital data and cybersecurity investments. We expect delivery of another ZAR 800 million in the second half. Furthermore, we are close to the peak of the intangible asset build and expect this to reduce over time from here. Turning to credit impairments. Our group charge declined 14% off a high base. PPB decreased 16% with lower charges across all books, particularly Vehicle and Asset Finance and Unsecured Lending. Business Banking rose primarily due to single name provisions. ARO RBB's increase largely reflects book growth and higher retail charges, partly offset by improved macros in some markets and business banking collections. CIB reduced materially off a high base, driven by lower single name charges. Our credit loss ratio improved noticeably from 123 basis points to 100 at the top end of our through-the-cycle target range of 75 to 100 basis points. Unpacking the portfolios, PPB improved materially. Within this, home loans improved slightly due to better performance in its pre-legal book, given higher quality new business, improved collection initiatives and the use of assisted sales to support distressed customers. Nonetheless, pressure remains on its late cycle book. VAF improved materially, reflecting revised credit policies, exiting specific higher-risk segments and collections actions. Cautious risk selection, enhanced collections and late-stage portfolio sales reduced the charge in unsecured lending. Business Banking increased to slightly above its through-the-cycle target range, while ARO RBB remained below its range. Lastly, CIB improved to slightly below its target range. Stage 3 loans or nonperforming loans grew 4% to ZAR 86 billion due to inflows in CIB and home loans. The NPL ratio improved marginally from December. We remain appropriately provisioned for a tough operating environment. Total coverage declined slightly but remains well above pre-COVID levels of 3.3%. Stage 1 coverage declined marginally, mostly due to improved new business performance in PPB. Stage 2 coverage reduced, driven by PPB, while the other businesses increased. Stage 3 coverage also decreased slightly because of single name write-offs with high coverage in CIB and Business Bank. This offset higher PPB coverage due to pressure in late-stage NPLs in the secured books. As mentioned previously, the head office numbers have been restated due to the reallocation of costs directly attributable to business unit activity. In addition to this, the head office loss improved significantly in the half. As noted, we have ceased hyperinflation accounting of Absa Bank Ghana. We have also improved the ALM position in South Africa as cost of funding was optimized and the bond investment portfolio returns improved. Despite lower rates in Africa regions, the ALM position has held up well given pre-hedging conducted in 2024 in anticipation of falling rates. We also benefited from rate and FX timing movements, some of which may reverse in the second half. Finally, outside of the inflationary growth in Head Office costs. We experienced higher dividend withholding tax in the half. Turning to capital. We remain well capitalized to fund the balance sheet growth opportunities that we see. Our CET1 ratio decreased slightly to the top end of our Board target range, comfortably above regulatory requirements. We remain capital generative with profits adding 1% to our CET1 ratio during the half. Further improving our ROE medium term will, of course, increase our capital generation. Risk-weighted asset consumption and dividend payments reduced our CET1 by 0.6%. Our group RWAs grew 5% during the half, mostly due to market risk growth. Lastly, I'll cover our guidance for the rest of the year. The global economic environment is likely to remain very uncertain. For South Africa, we have reduced our GDP growth forecast to 0.9% in 2025. Although inflation is likely to rise during the second GDP growth across our Africa region countries in 2025. Based on this backdrop and excluding further major unforeseen political, macroeconomic or regulatory developments, our guidance for 2025 is largely unchanged. We expect mid-single-digit revenue growth with stronger growth of a loan growth and mid-single-digit deposit growth. Our credit loss ratio is expected to improve to the top end of our through-the-cycle target range of 75 to 100 basis points. We expect mid-single-digit growth in operating expenses, producing a slightly higher cost-to-income ratio from the 53.2% in 2024 and low to mid-single-digit growth in pre-provision profit. Consequently, we expect an ROE of around 15% from 14.8% in 2024. Other reserves have increased our equity more than we expected as of June 2025, modestly reducing our ROE while supporting our NAV. We expect the group CET1 ratio to finish 2025 at the top end of our Board target range of 11% to 12.5%. We expect to maintain a dividend payout ratio of around 55% for 2025. We expect a weaker rand to underpin earnings slightly and Africa regions earnings growth should be noticeably stronger than South Africa. The first half results are an important stepping stone to our target of 16% ROE by 2026. I will now hand over to Kenny for his concluding remarks.

Thank you, Deon. I have been in my role for 2 months and the transition between Charles and I was smooth. While I had my own perception of Absa from the outside when I joined, I have extensively engaged with key stakeholders across the continent, including some large clients, investors, regulators and colleagues in order to get a better view of the group. There has been a common thread across much of the feedback on the issues Absa faces, such as it having gone through a period of substantial change, including high management churn and consequently, some parts of the business are rather inward focused. I've also encountered a few positive surprises. Since people lay the basis for everything the organization does, I've spent a lot of time with our executives, visited some branches, regional offices and countries. Absa has some exceptionally good people, comparable to the best in the market with similar depth and experience. Nonetheless, it is also clear that we need to strengthen the leadership team overall, which is my #1 priority in the near term. Moreover, my view has shifted on the strength of Absa's client franchise, whether in CIB or in sectors where it dominates like Agri and Business Banking. Absa also has a strong retail client base in the middle market in South Africa. Whilst Africa regions is a good quality franchise, albeit one that hasn't been fully leveraged. As you heard from Deon and Charles, we have made some progress on key elements of the recovery, and we remain fully committed to achieving our guidance, including delivering a steady improvement in our ROE. However, more needs to be done to accelerate the pace of execution in certain areas. Firstly, although Absa has a large and loyal client base, we are still too product focused and need to shift the orientation to be client first and product second. Everything must start with the client, and I plan to spend around 30% of my time engaging directly with clients as a signal to the organization, particularly to senior leaders that we need a more greater client focus. Second, our diversified pan-African portfolio provides a fantastic footprint and opportunity. However, this hasn't been appropriately leveraged. For instance, ARO RBB is run largely separately from the rest of the group. To fully unlock the potential across the continent, we need to run all our businesses on a connected pan-African basis. We have just received Board approval to move to a group structure where all three business units: CIB, Business Banking and Personal and Private Banking aligned to a pan-African model. While the shift might introduce new complexities, we'll make the changes quickly and see significant upside from this move. We will also invest in the appropriate talent to lead the businesses where necessary. Third, we need to sharpen our strategy and be clear on the markets and segments we want to win in. This is crucial so that we can better allocate our capital and resources to the areas that gives us the biggest impact. We can't play everywhere and be everything to everyone. Absa's change to bank investment spend is substantial, but rather fragmented and spread across too many small things, which inevitably dilutes the impact. Greater strategic clarity will enable us to focus all our efforts on key priorities. We will share our revised strategy with the markets in the coming months. Fourth, Deon spoke to our productivity program, which is on track to deliver planned savings over the medium term. My sense, though, is that there are several areas where we can remove additional bad cost and improve our cost-to-income ratio. Absa has generated a sub-15% ROE on average over the past 3 years, which is broadly in line with its cost of equity. This is not acceptable for an organization like ours. We intend to accelerate the delivery of improved returns over the medium term. I would like to reiterate our commitment to see through the stabilization initiatives that we started a year ago and heightened attention on the aforementioned focus areas. Thank you for joining us today, and we will now take questions.

The first question comes from Baron Nkomo from JPMorgan. Question one, please comment on the material increase in credit impairments in rest of Africa and the strategies in place to improve this going forward? Number two, in Life Insurance, why did CSM decrease despite the strong new business growth of 10%?

Right. Deon, if I may ask you to deal with those two questions.

Yes, Baron, thank you for those questions. In terms of ARO RBB, we have seen a slight increase in impairments. We've said that, that comes from retail charges growing. And if you look at this in the context of some of the operating environments like we've observed in Botswana that's undergoing negative growth. Also, there has been an impact on U.S. aid agencies throughout the continent, particularly their staff. So we have built some forward-looking coverage against these items. I would say that the CLR for ARO RBB is still well below it's through the cycle range. So we don't have concern there. And while it has picked up, it's not material. In terms of our insurance businesses, you would see overall growth on insurance income of 5%. Within that, Insurance SA has grown 3%, while the ARO Insurance income has grown by 10%. Within the SA business, our Non-Life component of our business is where we've experienced growth. Our Life insurance component of our business has seen a slight reduction, and that's really because of its linkage into personal loans and the type of growth that we experienced there. So I think all of these factors contribute to what you see in our insurance income.

Next question, James Starke, RMB Morgan Stanley. For Business Banking, please comment on how you see credit losses turning out in the second half '25. Should we expect first half '25 pressure to continue? On trading income, can you sustain this impressive momentum into two '25 -- second half '25? On ROE, please, can you expand on how you lift the ROE towards your 16% full year '26 target?

Right. Deon if you could deal with the credit losses in Business Banking, and then I'll ask Charles to deal with the trading income.

Yes. I think you would have seen that Business Banking credit losses around the ZAR 0.5 billion level. I think previously, that business enjoyed credit losses that were substantially lower than that. As we look to the second half, we're not seeing anything emerging that causes us to think that there's going to be a spike in H2. The H1 was really due to one or two single names that went into delinquency.

Yes. Thanks, James. Yes, on the trading income side, clearly, the first half of the year was a strong performance. And as we highlighted, the volatility in the market certainly is a tailwind behind us. As we go forward into the second half of the year, yes, we expect that we can sustain this business into the go forward. And ultimately, it's a business that we drive and we seek to drive from a client franchise perspective, in line with client activity.

And on the ROE -- I mean, I think the 16% for 2026 is a step on a journey of overall improvement of our ROE to be comparable with that of the sort of our competitors. And clearly, we have to continue to look at increasing the impact that we make for our clients, i.e., improving the top line, in particular, noninterest revenue. Secondly, we have to be very effective in driving efficiency throughout the organization, which is why the focus on costs and leveraging our operating platform become absolutely critical. I've made the point about the fact that I think there's additional scope for us to leverage our operating platform by effectively taking out costs that are regarded as bad costs. And thirdly, we mentioned the initiatives that are already underway to optimize the deployment of our capital, both in the short term, but also once the strategy has been finalized, capital allocation must take our strategic priorities into account and be informed by that perspective as well.

Okay. Next question comes from Harry Botha from Bank of America Securities. Number one, how should we think about CIB lending growth potential as peers note a strong pipeline? Two, does lower SA growth potential impact your progress towards 16% ROE in 2026? And three, can you outline your plans to improve business banking revenue growth in the medium term?

Good. Let's swap the other. Charles, if we could start with you on the CIB lending growth?

Yes. So as we mentioned in the update, we saw increased lending growth in our CIB franchise towards the back end of the half. And certainly, we've seen that continue into the first part of the second half of the year. So our anticipation is that we should see strong activity coming off the back of our CIB business lending in line with the client franchise.

So, Deon, do you want to deal with the SA sort of low GDP growth and its impact on our performance as well as the Business Banking question?

Yes. Harry, you remember when we last spoke, we spoke about the flexibility we've got in achieving our ROE targets. Certainly, that flexibility sits on the cost line, and we've still got a bit of rundown on impairments as we think about it. So look, low SA growth is not helpful for anyone that operates in South Africa. But at this stage, we believe we've got enough flexibility for us to achieve that, and we're on track for this year. So I think we -- that remains.

The next question is from Charles Russell, SBG Securities. Number one, can you reconcile the 15 basis points lower NIMs on deposit pricing with the 15% growth in corporate deposits? It looks like chasing low-margin deposits. Two, how do you think about your medium-term ROE progression beyond 16% in full year '26 and key drivers to the expected improvement? Three, when will you appoint permanent heads in PPB and CIB?

Deon, I think the first is yours, and we'll share the ROE between Charles and I. And then the third is definitely mine.

Okay. Charles, yes, as you rightly observed, 15 basis points lower NIMs. Look, a component of that is, corporates in South Africa being cash flush and looking to place deposits at the best return. Now to the extent that they're part of -- they're one of our clients, they're part of our franchise, we're not going to turn those deposits away. They don't cost us anything, but they make very little money, but it's part of an overall client franchise. I think some of the other things we have seen has actually supported our deposit NIM, particularly the endowment impact, even though that's 6 basis points lower on overall deposit margins, we do see the offset in our structural hedge performance. That's 8 basis points higher. So those are the two things I would say about deposit margin compression.

Charles, on ROE?

Yes. On the ROE, so I think this goes back to what we said when we first spoke to investors back in December last year, where ultimately, we said we were in a recovery period, and having an ROE below cost of equity is not where we need to be, and we ultimately need to rebuild the confidence in the organization and our ability to deliver short and medium term. Once we've done that, our ambition and we've got our ROE above -- well above 15%, we will -- in line with our approach and our strategy, we will set a new ambition as to where we ultimately want to be. But clearly, it doesn't stop at 16%.

And on the question of appointment, given that we now have finality on our operating model, it is all systems go with regard to sort of making permanent appointments across our three businesses. Those processes have started and we'll make announcements in due course. It is my intention, though that, that process should be finalized in the next sort of 2 months or so. And if -- in the event that we sort of appoint someone from externally to any of the businesses, that will be dependent on the notice period that they need to serve. But the decision should be made in the next 2 months.

Next question from Ross Krige, Investec. Please unpack the pathway to the 16% ROE target for 2026. What sort of income growth will be required to get to this level? Number two, with regard to PPB loan growth, should we expect an acceleration in growth over the next 6 to 12 months now that asset quality is improving and the SA consumer should see some relief from real wage growth and interest rate cuts? And number three, what sort of impact could U.S. tariffs have on credit risk, particularly for your agri books?

Yes. Let me deal with the 16%. I mean we're not providing a guidance for 2026 yet. But we're clear on the actions that we need to do to be able to continue to improve on our ROE sort of trajectory. And we will issue the guidance in terms of revenue growth at the right time. Deon, can you deal with the rest of the question and then Charles will give you the U.S. impact?

Yes. In terms of PPB loan growth, Ross, we certainly -- as we look at the second half of the year, we do certainly see a slightly better environment than we've been coming out of. Like we said, the actual growth in the secured space has been quite low from a market perspective and very competitive. So that whole market is -- has been subdued. We do expect a little bit of recovery given the lower interest rates and improving underlying consumer financial health. When it comes to unsecured, it's still -- we are still seeing a level of stress in that market, but we do have plans to selectively originate as we moved into the second half. So PPB overall, as I see the lending better than H1, but it's not a massive acceleration. It will be steady improvement from here.

Yes. Thanks, Ross. With regards to U.S. tariffs and our agri book, clearly, our agri book is significant. And as you would expect, we've spent a significant amount of time with our key agri clients, understanding the impact to them and particularly in the citrus sector and how that plays out. I think overall -- I think whilst there is some impact, and as tariffs ultimately bring through their impact, there will be a rebalancing globally. And some of this doesn't necessarily happen in the short term. New markets start to open up as flows are shifted in different ways depending on different tariffs around different countries. But I think overall, what I can assure you from our perspective, we don't see having spent time with our agri clients that this is going to be something that is a derailer to it. I think clearly, there has to be some rethinking in new markets that they need to look to. But I think the fact that we are in the Southern Hemisphere and we're in different seasonality, there are elements that potentially could even play into our hands.

The next question comes from Radebe Sipamla from Mergence Investment Managers. Four questions. First one, is the structural hedge program delivering the expected outcomes given the contraction in NIM and volatility in NIM over the past few reporting cycles? Is the strategy for deposit growth optimal given the lower margin the deposits came at? Number two, the commentary on the suboptimal ROE is broadly in line with the cost of equity -- has been in line with cost of equity, has been made by several of Kenny's recent predecessors. What makes the management team confident that they can achieve the 16% ROE? And what is the path to delivering the 16% ROE and beyond? Number three, lower noninterest revenue density has been a headwind to driving ROE higher. What will management be doing to targeting a higher contribution from NIR? Number four, competitors such as Capitec and FirstRand have been increasing strategic focus on the payment space in South Africa. Given the SARB's regulatory leaning to opening competition within the payment space to nonbank players, what will Absa be doing to address the threats posed from increased competition in the space?

Deon, if you can deal with the first two questions?

Yes, Radebe, no, thank you for that. If I -- I think your first question was on the structural hedge program and do we think it's working? I think you can see the impact in this half's results. You can see a negative drag on deposit endowment as well as equity endowment. The sum of those was a 9 basis point drag. The structural hedge pretty much offset that. So we've certainly seen that come through in the first half of this year. The second thing I would say is that we -- our deposit -- sorry, our overall margins have been stable. If you look at second half of last year into the first half of this year despite a reducing rate environment. So we're certainly seeing some of that protection come through. That being said, there's a lot of things that are outside hedging that cause volatility in NIM. Some of that has been price competition on the asset side. Others have been just the volume of liquidity in the system that is sitting, particularly in the wholesale market. And to the extent that you have a client franchise and clients need to put their money somewhere and need to earn proper interest rates on that, it doesn't cost us anything to take that and support that client franchise. Yes, so that was the first question on -- yes, on structural hedge and deposit growth. The second question was on confidence on our pathway on 16% ROE. Look, I think everything we probably said in March remains true. We said, we needed to reduce the impact of the once-offs. I think you've seen some of that now disappear as of this half. For example, the hyperinflation. We said we've still got a runway down on credit impairments. As you go to the middle of the range, that gets you a long way there. Although credit impairments are dependent on the state of the environment, but we do have some rundown there. The key thing is revenue growth needs to be higher than cost growth. And as we look at the second half, and especially momentum of NII into 2026, this is an important lever. We need to be above mid-single digits on revenue growth, mid- to high single digits, and we need to manage cost growth very carefully. So positive jaws is critical for us as we go into 2026. That's the same as what we've called out previously. We've delivered up to June operationally. We have line of sight for full year. And we have some flexibility on a few line items as to offset risks that may emerge as we go into 2026. So there's nothing operationally that's telling us that we're not on track at the moment.

I mean if I may add the following point, I mean, on the sort of the confidence to sort of deliver 16% ROE in next year. There are a whole range of initiatives that are currently underway and the results of those initiatives are already coming through. But if we're honest with ourselves, I mean, those initiatives are intended to stabilize the platform and give us a foundation upon which we can build. In addition to those, we need a strategy reset to sharpen the focus of the organization. And I think that has been Absa's biggest sort of challenge in the last couple of years. When you have repeated leadership changes, the organization will be unable to have a similar goal and be able to execute towards that goal consistently over a period of time. The unintended consequence of having too many leadership changes is that each product has each business unit at each geography effectively becomes, if you like -- get into autopilot. And I think by just reset and aligning the organization appropriately, there is so much low-hanging fruit that we can eke out both on the top line as well as in creating operational leverage. We'll be having a strategy session and finalizing that in the next 2 months, and we'll make the necessary announcement. Possibly, we'll have an Investor Day to share the output of our strategy with yourselves as well as indicate in some degree of detail as to our specific execution plan that will give us -- or take us to the 16% ROE and beyond. Charles, do you want to deal with the sort of the competitor environment, particularly in SA?

Yes. So I think there were two elements, kind of came through there, NII contribution and payments. Maybe I'll start with the payments side of it. Look, first of all, as you alluded to, is an opening up of the market. I think, as Absa, we certainly applaud that. I think it's a good thing to have more competition. And I think the payment space, first of all, it is an ecosystem. There are many parts that come into play there, and it is a scale game. However, we also have to acknowledge that this is an efficiency play now. And in all reality, we have to understand how we drive our cost base down around that, and we serve our clients from a payments perspective in a seamless and efficient manner. I think ultimately, as we shift, as you've heard today, to being very much more client-led and client value led, this is just another product that we have to price as we look at our clients in a holistic manner. I think that kind of leads on to your other question, the NIR contribution, and I think it joins up to what Kenny said there. I think as the strategy becomes more client focused, we become more precise about the sectors and the segments where we intend to win, tied in with your efficiency around products that are perhaps nearing end of life cycle, et cetera, you understand how you ensure profitability around your NIR capabilities. I do think that some of the steps that we've put in place around the shifts to being much more client-focused and understanding where we are going to win. These are building blocks that ultimately serve us in this regard.

The next question comes from Jarred Houston from All Weather. Given the strong capital position, are share buybacks under consideration?

Yes, Jarred, share buybacks always remain a tactical tool in the strategic choices we have to make. As we consider where we create value, organic, inorganic versus returning capital to shareholders in its different forms absolutely remains options that we have. Our guidance for the full year is 12.5%. Post dividends, that's closer to the middle of the range. The middle of the range is appropriate because at that level -- that's the level where we can cover regulatory minimums, including the new changes we expect to come in next year and have an appropriate stress buffer to cover ourselves against volatility. That's why you would notice that we've also increased our capital allocation to the business units closer to the midpoint of that range because we think that's our appropriate point.

We have no more questions.

All right. Well, thank you very much for the time you have taken to sort of come listen to us this morning as well as for your questions and comments. I'm sure there are more sort of questions that will flow in the one-on-one engagements. And should you have any further questions, please address those to the Investor Relations teams, and we'll endeavor to respond to you. That brings us to the end of this session. Thank you very much.