AGRPY (AGRPY) Q2 2026 Earnings Report, Transcript and Summary

Good morning. On behalf of Absa's leadership team, thank you for joining us for our 2026 interim results presentation. I will begin briefly reflecting on our strategy and why we are still confident about the future before moving on to our first half performance and the progress we are making against our strategic priorities. Deon will then take you through the detailed financial results, after which I will conclude with our medium-term outlook. As I reflect on Absa today, I remain convinced that the opportunities ahead of us are significant and that we are focused on the right priorities. Our strategy remains anchored on 4 pillars: organizing ourselves around the customer and being customer-led, capturing opportunities across our chosen markets to build a diversified pan-African business, driving excellence throughout the organization, and exploring new growth opportunities. These pillars can only be enabled by our people, combining deep talent and strong leadership to build a culture of empowerment and competitive spirit. As mentioned in March, 2026 is a year of transition for Absa. We are focused on sustaining performance momentum today while strengthening the foundation that will enable more consistent growth and improve returns longer term. A key part of that foundation has been to deepen leadership and build a stable, high-caliber executive team. Over recent years, leadership changes have inevitably caused some disruption and reduced the benefits that should come from our scale, talent, and capabilities. Strengthening our leadership depth, accountability, and execution was therefore one of my first priorities as Group CEO. I am pleased to report that this work is now largely complete. More importantly, we are already seeing the benefits. Across the organization, there's greater alignment, clearer accountability, and a stronger focus on execution. While there is still work to do, the early signs give me confidence that we are building the leadership platform required to unlock the full potential of this franchise. Let me turn to the operating environment and our first half performance. Our chosen markets remained resilient during the first half despite energy disruptions and higher prices, as well as uncertainty arising from the Middle East crisis. Government-driven reforms, interest rate reductions, and demand for commodities are also expected to support steady economic growth going forward. This is particularly clear in the GDP outlook across our Africa Regions market, which are expected to grow at 5% in 2026 and 5.6% in 2027. In South Africa, strong momentum at the start of the year gave way to a more difficult second quarter as inflationary pressures reemerged and confidence softened. However, while growth is still modest, the economy continues to show signs of resilience. Our business produced a solid set of results for the first half. Headline earnings grew by 8% to ZAR 12.8 billion, with revenue increasing by 4% to ZAR 58.8 billion. Return on equity improved to 15%, while we maintained a strong capital position with a CET1 ratio of 12.8%. We also continued to deliver value to shareholders through an 8% higher interim dividend per share and a 5% increase in NAV per share. The most significant drag on our results was the pace of interest rate cuts across some of our key markets. Although lower rates were expected and factored into our plans, the speed and magnitude of the reductions, particularly in Ghana, had a pronounced effect on deposit margins, resulting in net interest income growth of 3% despite continued balance sheet expansion. Notwithstanding this, the underlying health of the franchise remains strong. Non-interest income increased by 6%. Customer loans grew by 6%, and customer deposits increased by 5%, reflecting a healthy client business. Looking across the portfolio, I'm encouraged by the quality of the underlying franchise and the impetus we continue to see across many parts of the group. South Africa was the standout contributor during the period, growing earnings by 17%. Personal and Private Banking was a highlight of the period, delivering a strong performance with earnings increasing by 12% and returns improving to 15.2%. Momentum was evident across the franchise with South Africa delivering earnings growth of 10% and Africa Regions of 23%. The result was supported by strong customer activity, double-digit growth in digital engagement, continued growth in digital revenues, and improved insurance income in South Africa. Business Banking delivered a credible performance, continuing its recovery with earnings growth of 5% and an improved ROE of 24.6%. South Africa was a key contributor, delivering a 10% earnings growth, whilst Africa Regions contracted by 18%. Despite short-term margin pressure, the business delivered good balance sheet growth. Corporate and Investment Banking, which accounts for approximately half of our earnings, delivered modest earnings growth. However, the strength of the franchise and the quality of the client relationships remain intact. South Africa delivered 8% income growth and 13% higher earnings because of strong origination across our prioritized sectors. In Africa Regions, lower interest rates weighed on earnings, but underlying client activity remained positive and supported loan growth. Taken together, these results reinforce our confidence in both the strength and the potential of the franchise. We continue to see sustained origination across South Africa and Africa Regions, providing a steady foundation from which to deliver future growth. Let me delve deeper into the progress made in executing our strategy thus far. Firstly, we continue to grow our customer base and made satisfactory progress in expanding the number of active retail and Business Banking customers across our regions to more than 12 million. Customer growth is further supported by deeper engagement. Customers are interacting with us more frequently through digital channels and increasingly choosing Absa for a broader set of their financial needs. These are important lead indicators as the depth of the relationship translates into more business activity with our clients. We're also hearing from clients that there's a different sense of energy in how we show up. Clients are recognizing greater responsiveness, a stronger bias for action, and quicker turnaround times. Whilst there is still significant work ahead, these trends give us confidence. Growing customer numbers, deeper engagement, stronger client relationships, and increasing demand for our solutions all suggest that the underlying franchise is responding positively to the strategic choices we have made. They are important proof points that customer-led growth is becoming embedded across the group. Diversification is a vital component of our strategy because it is fundamental to building a more sustainable and resilient franchise over time. While this slide shows some movement in our mix, some of the changes you see reflect slower growth in parts of the franchise that have historically been our largest contributors rather than a step change in growth elsewhere. We believe that our pan-African footprint, our business lines, and strong client franchise provide us with the foundation to accelerate this shift. While progress will not be linear, building a more balanced and diversified earnings profile is still a key strategic priority for us. Let me turn to our third strategic pillar, driving excellence. Cost remains an important part of how we manage the group. In the first half, we kept cost growth below inflation, reflecting a more deliberate approach to how we allocate resources across the business. This is not simply about controlling costs. It is about ensuring that every rand we spend is directed towards areas that strengthen our competitive position and support long-term growth. At the same time, we continue to make the right investments for the future. These include strengthening the leadership, deepening frontline revenue-generating capabilities, and building specialist skills that enhance our ability to serve customers and clients. We also continue to invest in technology, data, AI, and digital capabilities, which are important drivers of productivity, client experience, and growth over time. Equally important is our focus on removing costs that no longer create value. We are simplifying processes, reducing unnecessary complexities, rationalizing infrastructure, and challenging discretionary expenditure. An example of this is the optimization of our branch network. Since June 2025, we have increased the number of sales and service outlets from 122 to 215 as we shift away from traditional full-service branches and reshape our footprint to better align with customer needs. In doing so, we are freeing up resources that can be reinvested in growth, customer experience, and other strategic priorities. We recognize that clients increasingly expect integrated experiences rather than stand-alone banking products, whether through strategic partnerships, ecosystem participation, or new offerings. Our objective is to create additional value for customers whilst improving their overall experience with Absa. The partnerships highlighted on this slide are examples of how we are extending our reach, enhancing our relevance, attracting new customers, and creating value beyond traditional banking products. At the same time, we are aligning our franchise to capture value across key corridors driving trade, investment, and capital flows into and across the continent. We're also strengthening key propositions, including wealth, by expanding our capabilities in Mozambique and Kenya and establishing a Mauritius wealth hub as a gateway for offshore and cross-border client needs. Together, this enables us to connect clients, deepen relationships, and capture a greater share of Africa's long-term growth potential. These are just a few examples of the actions underway across the group to strengthen our competitive position and capture a greater share of Africa's long-term growth opportunity. Before I hand over to Deon, let me conclude by touching on culture, which I believe is one of the most important enablers of our long-term success. Building the right culture across the organization is a priority. Strategy does not execute itself, and sustained performance depends on people. Creating an organization with the right mindset, behaviors, and accountability is critical to unlocking the full potential of this franchise. The culture we are building is centered around a few simple shifts: becoming more customer-obsessed, more outcomes-focused, and more committed to excellence in everything we do. We want a culture where people take ownership, move with urgency, work together effectively, and remain focused on delivering value for our clients. This starts with leadership. As I mentioned earlier, we have taken deliberate steps to deepen leadership across the organization, ensuring that they are visible, accessible, and connected to colleagues across the business. People should feel the impact of leadership through greater clarity, stronger accountability, faster decision-making, and a clearer sense of direction. We are also fostering stronger collaboration and teamwork across the group. The ambition is to bridge silos, bring teams closer, and create a more connected organization. At the same time, we are empowering frontline colleagues with the authority, tools, and support they need to serve customers more effectively and respond faster to opportunities. Change takes time, but we are committed to building a winning culture that will strengthen execution, unlock the full potential of our people, and become a lasting source of competitive advantage for Absa. With that, I will now hand over to Deon to take you through our detailed financial performance. Deon, over to you.

Thanks, Kenny, and good morning, everyone. I will unpack our interim results and set out our 2026 guidance. Our earnings grew 8% to almost ZAR 13 billion, maintaining the same growth rate as the second half of last year. Consequently, our ROE continued to improve, rising slightly to 15% to exceed our cost of equity of 14.9% for the period. Turning to the income statement drivers. 4% pre-provision profit growth and slightly lower credit impairments drove earnings. Net interest income grew 3%, reflecting 6% higher average interest-bearing assets and some margin compression. Non-interest income rose 6%, taking overall revenue to ZAR 59 billion, up 4%. Operating expenses increased 4%, resulting in marginally negative operating JAWS and 4% higher pre-provision profit. Credit impairments decreased 1% due to a lower charge in PPB. The stronger rand during the period reduced revenue and costs by 2% and earnings by 1%. Our diluted HEPS grew 7%, and we declared an 8% higher interim dividend per share of ZAR 8.50. Lastly, our NAV increased 5% to ZAR 2.10 per share. Our South African business performed well again with earnings growing 17%. Improved 8% revenue growth was supported by some margin expansion and growth in client revenues across the business units. Costs were well managed to deliver 4% positive JAWS and 12% higher pre-provision profit. All our SA businesses grew earnings by low double digits, while the net ALM position improved noticeably. Our SA earnings have grown almost 40% in the past 2 years, and South Africa's ROE improved to 15.9%. Conversely, Africa Regions revenue and earnings declined in the first half, reflecting the current concentration in Ghana and Kenya. Lower policy rates in these key markets, combined with the stronger rand, saw revenue decline 3%, resulting in substantially negative operating JAWS and 10% lower earnings. The underlying franchise continues to build momentum with 12% growth in retail customers to 3 million and solid constant currency non-interest income growth across PPB and Business Banking. Our net interest margin narrowed 12 basis points to 446 basis points, predominantly due to endowment margin compression in Africa Regions. Our margin was slightly lower than the second half of 2025. Customer loans added 6 basis points to the margin on improved margins in PPB unsecured lending, partly offset by higher growth and lower margins in CIB South Africa. Customer deposits reduced the overall margin by 19 basis points, of which the deposit endowment impact was 11 basis points. The equity endowment was a 6 basis point drag overall. In South Africa, the structural hedge released a benefit of ZAR 348 million, contributing 8 basis points to the margin. Our net interest margin remained stable in South Africa as the structural hedge offset the endowment impact, while Africa Regions margin declined by 47 basis points, mainly due to the endowment impact of lower rates. Although our Africa Regions balance sheet is considerably smaller at just 19% of our total customer deposits and equity, it is more sensitive to falling rates and accounts for almost 60% of our interest rate sensitivity. Turning to our balance sheet. Loans to customers continue to grow. The stronger rand was a 9% drag on Africa Regions assets year-on-year or 1% on group assets. Net customer loans grew 6%, with South Africa up 7%, while Africa Regions rose 5% or 14% in constant currency. Customer deposits grew 5%, with South Africa up 6%, while Africa Regions was flat, albeit up 8% in constant currency. Unpacking net customer loans, CIB grew 9%, led by growth in resource and project finance, including renewables, real estate finance, and increased demand for working capital facilities in transactional banking. Growth in PPB remains moderate with home loans up 2% and vehicle finance rising 11% in South Africa. Business Banking grew 9% with growth broad-based by geography and product. Our loan growth improved in the first half with 8% annualized growth. Non-interest income grew 6% off a relatively strong base, particularly in Global Markets. Net fee and commission income growth remained low, increasing 3%, although it still accounts for nearly 2/3 of the total. Within this, fee and commission income grew 5%, with transactional fee and commissions also increasing 5%. Net trading income, excluding the impact of hedge accounting, increased 4% off a very large base, with Global Markets SA up 8% and Global Markets Africa Regions declining 1%. Client franchise revenues grew 18%, while market making declined slightly as key markets reduced. In aggregate, net insurance income increased 8%, reflecting growth in Insurance SA as Africa Regions dropped 70%, largely due to selling 3 entities in the first half of 2025. Operating expenses grew 4%, resulting in slightly negative operating JAWS and a 53.4% cost-to-income ratio. Staff costs increased 6%, including 4% higher salaries. Non-staff cost growth was contained to 3%. We are more disciplined in our investment, expensing more and capitalizing less, resulting in higher technology costs and pro fees, which offset lower amortization and depreciation combined. Total IT spend, including staff amortization -- including staff amortization and depreciation, increased 7% and accounted for 28% of overall expenses as we continue to invest in digital, data, and cyber capabilities. Marketing declined 9% as we refocused our marketing spend to higher impact areas. Property decreased 2% as continued optimization of our property portfolio offset investments in retail branches. Lastly, the remaining operating costs rose 10%, given 11% higher equipment costs and increased deposit insurance in Africa Regions. Our productivity program remains on track, delivering almost ZAR 800 million of gross benefits in the first half, taking the cumulative benefits to ZAR 4.4 billion. These came from optimizing back office and channels, technology infrastructure, and corporate property. This was largely reinvested in digital, data, and cyber capabilities. Moving to asset quality. Our credit impairments declined 1%, further improving our credit loss ratio to 94 basis points. Thus, it moved back into our annual through-the-cycle target range. Unpacking credit impairments, the largest, PPB, declined 1%, further improving its credit loss ratio despite building further macroeconomic coverage. Within this, unsecured lending improved, driven by card. Personal loans credit impairments grew 5%, reflecting weaker forward-looking macroeconomic assumptions. Home loans credit impairments increased 8%, mainly due to building macroeconomic coverage and continued pressure in the legal book. Vehicle and Asset Finance credit impairments increased 4%, given stronger production, partly offset by improved collections and stricter new business selection. Overall, underlying pre-delinquency trends are improving across PPB. Business Banking credit impairments grew 5%, producing a flat credit loss ratio year-on-year. Business Banking SA decreased 3%, while Africa Regions increased materially off a low base that included once-off recoveries. CIB credit impairments grew 16%, resulting in a flat credit loss ratio due to higher performing book charges, partially offset by lower Stage 3 charges, particularly in South Africa, although they remain below the through-the-cycle range of 20 to 30 basis points. Stage 1 coverage was flat, while Stage 2 declined. Stage 3 coverage decreased due to writing off highly covered single names in CIB SA, together with model enhancements and improved portfolio performance in PPB Africa Regions. Consequently, total coverage declined to 3.6%. Non-performing loans decreased 5%, improving to 5.3% of gross loans and advances with NPLs lower across all business units. Moving on to our businesses, all grew earnings. The largest, CIB, grew 1%, while PPB and Business Banking rose 12% and 5%, respectively. The loss in our head office more than halved given a strong ALM performance in South Africa and lower costs. After several years of strong growth, CIB earnings growth slowed given low pre-provision profit growth and higher impairments. As a result, its ROE declined slightly to 19%. Nonetheless, it still generated 47% of our earnings. Once again, CIB benefited noticeably from its business line and geographic diversification. Investment Banking earnings grew 8% on solid loan book growth and good fee income. Global Markets earnings rose 9%, driven by strong client revenues and largely flat market making. These offset 13% lower transactional banking earnings due to competitive pricing in South Africa and lower rates in Africa Regions. We have taken steps to strengthen the franchise, which will improve client acquisition and leverage our strong transactional banking capability. Geographically, CIB SA earnings grew 13%, driven by non-interest income growth of 14% with all business units delivering double-digit earnings growth. By contrast, CIB Africa Regions earnings fell 12% due to 3% lower revenue given declining rates and muted global markets. We reported PPB as a single pan-African business for the first time. Its earnings increased 12% with double-digit growth in both SA and Africa Regions. SA revenue growth recovered to 5%, reflecting margin expansion, while largely flat JAWS supported 4% higher pre-provision profits. Credit impairments improved due to more selective credit origination over the past 2 years, supporting early delinquency constructs and improving NPLs, resulting in 1% lower credit impairments. Thus, ROE improved to 15%, and we see scope to increase it materially medium term. All of PPB's banking businesses grew earnings. Transaction and deposits increased 5%, in line with revenue growth. Revenue growth was supported by improved deposit margins, while continued client growth and improved digital revenues offset declines in cash and higher reward costs. We continue to focus on opportunities to accelerate fee income growth. Unsecured lending is recovering with stronger pre-provision profit growth on the back of improved margins and lower impairments. Home Loans earnings grew 2% in a competitive market with new loan production of 13%. Vehicle and Asset Finance rose 22% on 10% pre-provision profit growth due to good loan production largely in line with market and improved credit impairments due to more targeted risk selection. Insurance SA headline earnings declined 2%, while revenue growth was up 6%. Africa Regions Banking earnings grew 14% or 26% in constant currency, largely due to continued momentum in customer acquisition with non-interest income up 8%. In addition, credit impairments were 18% lower given improving macros and prior year base effects. We also showed Business Banking as a pan-African business for the first time. Its earnings grew 5% on the back of 2% higher pre-provision profit as non-interest income rose 7%, driven by increased client activity and higher lending fees, partially offset by lower payment revenues. Importantly, its ROE improved to 25%, although we also see scope to improve it materially over the medium term. Business Banking South Africa's performance improved with earnings up 10%, given 6% higher pre-provision profit and 3% lower credit impairments. Consequently, its ROE increased to 26%. As a liability-rich business, Business Banking Africa Regions net interest income declined 4% due to lower policy rates, offsetting solid double-digit growth in non-interest income and solid loan growth. Combined with higher credit impairments, its earnings fell noticeably. Turning to capital. We remain well capitalized. Our CET1 ratio improved to 12.8%, above the top end of our 11% to 12.5% target range and well above regulatory requirements. We remain capital generative as profits added 1% to our CET1 ratio during the half. Importantly, improving our ROE further medium term will increase our capital generation. Risk-weighted asset consumption reduced our CET1 by 0.5%, which was partially offset by RWA optimization that added 24 basis points. Group RWAs grew 3%, below 6% asset growth, partly due to optimization. Lastly, paying out our final 2025 dividend decreased our CET1 by 0.6% during the period. Finally, I'll set out our guidance for 2026. The outlook for the global economy remains uncertain as events in the Middle East remain volatile. Moreover, there is evidence of a very large El Nino weather event from late 2026 and into 2027 that could bring extreme drought or rain to many parts of the world with potential knock-on effects on global food prices. We have trimmed our baseline real GDP growth for South Africa to 1.5%, and we expect policy rates to remain unchanged into early 2027. The outlook for our presence economies in Africa Regions remains constructive, and we project real GDP growth of 5% given ongoing infrastructure investment, multilateral support, and ongoing reforms. Downside risk pertaining to the fallout from Middle East crisis remains significant, along with potential adverse weather conditions. We further expect to be close to the bottom of the rate cutting cycle in many key markets. Based on these assumptions and excluding further major unforeseen political, macroeconomic, or regulatory developments, our guidance for 2026 is as follows: We expect low to mid-single-digit revenue growth. We expect high single-digit growth in customer loans and mid- to high single-digit growth in customer deposits. Our credit loss ratio is expected to be broadly similar to last year and in the middle of our target range. We expect low to mid-single-digit growth in operating expenses, producing slightly negative operating JAWS and low to mid-single-digit pre-provision profit growth. Consequently, we expect an ROE of around 15%. Lastly, we expect our CET1 ratio to finish 2026 at the top end of our target range, and we expect to maintain a dividend payout ratio of 55% for 2026. Thank you for your attention. I'll now hand you back to Kenny.

Thanks, Deon. We remain convinced of the underlying strength of our business and the significant opportunities ahead of us. Our medium-term targets, therefore, remain unchanged, and we look forward to providing more detail on how we intend to deliver against them at our Investor Day in November. With the leadership team now largely in place and aligned behind a common strategy, we will provide further detail on how our business units intend to finalize their strategies and implement actions that are required to deliver growth and improve return over the medium term. I'm encouraged by the progress we are making. Our results show encouraging momentum and further evidence that our client franchise is responding positively to the strategic choices we are making. At the same time, we are focused on building a stronger and more sustainable business. We continue to invest in leadership, talent and technology and embed a culture of excellence and unlock new opportunities for growth across our markets. Absa remains an established pan-African franchise with significant scale, deep client relationships and attractive opportunities. While there is still work to do, our first half progress gives us confidence that we are strengthening the franchise, building momentum and positioning Absa to deliver improved medium-term growth and returns. We will now take your questions. Thank you.

The first question from Baron Nkomo, JPMorgan. You guide to high single-digit growth in customer loans. Which segments and geographies are you expecting to drive most of that growth? Number 2, in life insurance, gross new business CSM reduced materially, negative 9% year-on-year. What drove this decrease? And how should we think about the outlook for second half?

[ Rashid ] we take another question?

The next question from [ Mark Fackler ], Storm Capital Management. Has first half '26 marked the trough in revenue growth, margins and Africa profitability? And are you confident that all 3 metrics improve in second half '26?

All right, thank you. If I may, I mean, on loan growth, I mean, we are joined also by the CEs of our businesses, Charles, CEO of Africa Regions; Leon Barnard, CEO of Business Banking; Sitoyo Lopokoiyit, CEO of Personal and Private Banking business; and Zaid Moola, the Chief Executive of our CIB business. If I may ask, sort of, Sitoyo and Leon to deal with loan growth. And Charles, if I could ask you to deal with the Africa-related angles to that loan growth. And Sitoyo, if you could also cover the insurance, and I'm sure Deon will want to add at the back of that. And Deon, if you can deal with the last question for the 2026 is the trough with regard to our revenue generation.

Thank you. I think first, in terms of loan growth, we do have areas in which we are working on from home loans as well as unsecured, we do know that from that perspective, we've not yet performed as we expect, but that's something that we are working on in terms of 3 things that we're looking at. One, we are fixing the fundamentals around the business. We're looking at opportunities for growth in these 2 areas from that side, Kenny. So that's what we're looking at. There is opportunities that we have, and you'll see that coming in the second half and into the FY '22 -- FY '27, sorry.

Leon, Anything to add?

Thanks, Kenny. The only -- what I would add in the Business Banking environment, a lot of our loan growth came out of the commercial sector, slightly benign in the SME sector. And the growth, if we look at the products was our commercial asset finance. There was a very strong normalization, especially towards the end of H1. Our property finance, there also -- we've seen very strong growth. So our production growth on that side was very strong. So it's a broad-based sector growth we've also seen. We've seen it in our agri sectors. We've seen the growth sitting in our wholesale finance. And then going forward, the areas we expect to see -- we expect this to continue over those sectors and those product sets. The areas we're really targeting at the moment is our working capital or overdraft facilities. That was not at the level we would have wanted to see it. We're targeting that quite aggressively. And then our trade products, we want to see some real accelerated growth on the trade side. Those are areas that we're targeting at the moment.

Zaid, you are also the big mover of our loans and advances to customers.

Thank you. Good morning, everyone. Yes, I think we will continue to look to see growth in H2 from an asset perspective in similar sectors that we've seen them come through in the first half. So again, our metals and mining sectors, energy, oil and gas as well as real estate finance and structured trade and commodity finance. Again, if I look at it, I think that, that will still be skewed to more stronger growth in SA, but also Africa Regions growing quite strongly or fairly into H2.

Charles, anything to add on your side?

No. I think clearly, with the -- what we believe is the bottoming out of the rate cutting cycle, I think this in due course, should represent the opportunity for us across the continent in terms of quality, client, customer-driven franchise growth. So in line with our strategy. Thanks.

Deon, if you could also cover the insurance question as well as any addition you may want to make.

Yes, Baron, the decline in CSM is really actuarial assumption driven given lower interest rates. I think the key thing is that the CSM is still converting to 6% growth in earnings as expected. Then in terms of whether we believe 2026 is the trough. Interest rates has been a drag. We've seen -- you'll see in the slide there in terms of net interest margins, we've seen over the last 18 months a decline. And that was really Africa Regions rates coming down. If you look at Kenya, which cut in H1 last year, most of that by H1 this year is out of the base. So what we still have to ride through the base is Ghana, which started second quarter of this year, will feed into H2 and a little bit into H1 next year. But once you -- we do believe, like Charles said, we are at the bottom of that rate cutting cycle now. We start to stabilize and potential next moves are up. If we look at that into the medium term, your NII would closer approximate your advances growth at that point. So certainly, on the revenue line, that drag starts to wash out as we go into next year.

The next 3 questions from Charles Russell, SBG Securities. Number 1, can you unpack the ZAR 355 million other impairments on the income statement versus the base of ZAR 769 million, which included Ghana hyperinflation impacts. Number 2, can you expand on the disappointing 3% growth in fee and commission income contrary to the positive data on Slide 7. Number 3, what is driving your upgrade of guidance for loan growth for full year '26 estimate to high single digits? Is this based on your annualized first half performance of 8%.

Thanks. Deon, let's start with you this time around.

Yes, Charles, I think -- so ZAR 355 million is probably more the -- every 6 months, we do a refresh of any small levels of technology that needs to be looked at in terms of intangible assets. These would be stuff that rolled down to about under ZAR 20 million. So we typically don't keep that stock on our balance sheet. So I consider this more kind of a BAU look at what technology is capitalized and small -- is now small levels that need to be written off on other impairments. Yes, in terms of fee and commission, that's something we need to improve, Charles. I think we all acknowledge that. If you look at the income line, slightly better, up 5%, but there is still quite a bit of expenses coming through on that line in terms of higher scheme costs, higher reward costs and the like. But fee and commission income certainly has to drive up. I mean we've got the traditional declines in cash as well as, as we switch clients to PayShap. That is a drag. That's offset by much stronger digital revenues on that line item, but it's a key focus for us, and we acknowledge that. Loan growth in terms of high single digits, certainly had strong annualized growth in H1. We also saw a strong pipeline as we go into second half. particularly on -- in wholesale, if we look at Business Banking and CIB, and that gives us the confidence on the loan growth guidance. Zaid, you can also add on loan growth, if you'd like.

Yes. I think we've actually spoken about asset growth in terms of what the outlook is for the second half already in the key sectors.

Let's take other questions.

Next question from [ Tumi Loate ] from 36ONE Asset Management. Could you help us understand the composition of fee and commission expense? What proportion is variable and should scale with transaction activity such as interchange scheme fees and loyalty costs versus representing a more structural cost burden? And is there anything in Absa's cost mix that explains why this line may be higher relative to peers?

All right. Deon go first, and then we'll ask maybe Sitoyo or Leon to add.

Yes. Look, I think the real trick here is to drive up the fee and commission income line. There is a level of fixed costs in -- particularly in terms of our schemes. A component is also then linked to the far higher transaction volumes that we've got. I think the one -- the more kind of short-term drive here is to build up our customers on rewards and a lot of that comes through the fee and commission expense line as well. And structurally, we've had a very low level of customers on rewards. So there is a bit of catch-up to do there, Tumi. So I think that bit would normalize. But yes, it's balanced between kind of your traditional kind of like fixed costs in schemes. but a large component of variable also linked to your volumes.

Do you have anything to add?

No, I think just adding in terms of what we are looking at from increasing our customer growth and then accelerating digital penetration and then moving more into payments and VAS into it so that we can increase our revenues from that standpoint.

The next question from Radebe Sipamla, Mergence Investment Managers. Could you please unpack what drove the lower negative 13% transactional income in CIB? Can you also unpack the overall trends you observed in first quarter '26 and second quarter '26 within overall CIB and within the trading structuring side? Are there any synthetic hedging structures you could use in Africa Regions to help reduce volatility on NIMs as you scale the Africa Regions operations over time and become more significant within the income statement and balance sheet?

Zaid, I think that's CIB questions.

Sure. Thank you for the question. So I think looking at the negative 13% decline in transaction banking. I think when we started the year, we knew we've got a challenge in the transaction banking business. But driving the 13% is actually 18% up in SA and down 30% in AR. The primary driver, the biggest impact in AR is actually the rates impact on the business. It's a fairly cyclical business. So if you look over the last 4 to 5 years, the transaction banking business was performing quite well. But in the last 2 years, with rates coming down, it's providing obviously a challenge. What I think equally needs to be called out there is just the lack of revenue that's coming through and the lack of client acquisition. We've put in new management in there in the business. [indiscernible] Temoracotzso has come in to lead that business. And we've started to see some of the client wins come through. So that's really some of the key drivers that I think have obviously led to the 13% down, including just some increase in impairments in the Transaction Banking Africa Regions business. To your question, just in terms of what we saw in Q1 versus Q2, I think Q1 actually was fairly strong, driven again by the markets business as well as the investment banking business. What we did see post the Middle Eastern conflict is a slowdown in the markets business, in particular, in April and May and then again, an uptick in June. But IB and Global Markets has actually performed or continue to perform since then. And the transaction banking business is starting to obviously hopefully see the bottom of its cycle. In terms of managing the NIM in Africa Regions in particular, in South Africa, the bank obviously uses a structural hedge in place to manage the interest rate volatility and sensitivity. It's a lot more difficult in Africa Regions, just given the depth, size and nature of the markets within which you operate and the liquidity therein. So it's actually a little bit harder whether you're using structured products or bonds or T-bills, it is a little bit harder to actually manage that exposure and volatility in Africa Regions.

Thanks Zaid. Let's take more questions.

Next 2 questions from [ Donata ] [indiscernible]. Can you provide more color on the earnings decline in Africa Regions, CIB and Business Bank and how we should think about the earnings evolution for those 2 areas going into the second half? Number 2, key Africa Regions markets with high sovereign risk and measures taken to curb that risk.

Charles, if I could ask you first.

Yes. Thanks, [ Donata ]. Yes, as Deon mentioned earlier, Africa Regions, CIB and Business Banking businesses were significantly impacted, particularly in Ghana and Kenya in the first half of the year due to the rates coming off and margin compression. Some of that dislocation with regard to Ghana actually plays out into the second half of the year, which I think does continue to pose some challenge into the second half. But I think in terms of what you've heard from Zaid earlier, as we look to grow the franchise, et cetera, hopefully, some of the volume increases, et cetera, come through, which start to offset that into the future.

And then on sovereign risk.

Yes. So managing sovereign risk is clearly high on our agenda without calling out the market specifically. We closely look at any lazy balance sheet risk. We look at our exposure to the sovereigns and ensure that isn't lazy, what I would call lazy sovereign exposure and risk. And where we are in a position to derisk, we certainly do that. And I think we've been reasonably successful thus far in what we've done around that.

Next question Chris Steward at Ninety One. It would appear that the bulk of the rate endowment and FX conversion headwinds are now in the base given spot versus first half '26 averages. Why then not a more optimistic outlook for second half versus first half '26?

Deon, do you want to deal with that?

Yes, Chris, partly in the base. Like I said, Kenya rates repricing is largely in the base now. But we still expect Ghana to be repricing into the second half. We have seen a big dislocation between treasury bills versus the official rates in the country, official rates at 14%, treasury bills around 5%. Chris, I think we've been quite conservative now in our guidance, projecting that, that 5% continues. Normally, you would expect that dislocation to normalize. At the moment, there's a lot of surplus liquidity in that market and government doesn't need to borrow. So that's the situation as at today. Could that change in 3 to 6 months? Possibly, but we've now been conservative in how we've forecast that for the second half.

Next question Ross Krige from Investec. Please can you comment on the group NIM outlook for second half relative to first half? Question 2, in PPB, what does repositioning distribution as a commercial growth engine entail? And what new platforms and partnerships could we see? And 3, please comment on the net fee and commission income growth outlook in PPB SA relative to the 2% achieved in first half?

All right, Deon to start with you on the NIM outlook and then Sitoyo will deal with the distribution and partnership question.

Yes, Ross, I'll give you a sense. We don't guide specifically on NIM. But if you remember, we had full year NIM last year of about 453 basis points. We expect clearly that to decline. We expect a similar decline as what we've seen in the first half, half-on-half, full year on full year of at least 10 basis points. Like I said, a critical assumption in that is that the treasury bill rates in Ghana stay at current levels into the second half. In addition, we've seen cash reserves also increase in Ghana on the 4th of June. So all of that's factored into those assumptions. It's probably the largest driver of that NIM compression into H2.

Sitoyo, distribution?

Thanks. I think when we say distribution as a growth engine is as we discuss the branches gives us opportunity to invest in lighter branches and areas into sort of like agency banking. So we are seeing distribution now being a key lever for customer growth, digital channels, education as well as really focusing on how we deliver a better customer experience from a distribution standpoint. Distribution is just not the branches, but all channels that actually we will be leveraging on. With regard to partnerships, when we're looking at we're looking at it from an ecosystem perspective. So to the gentleman on my left and my right is how do we collaborate between CIB Business Banking, but more also is regarding partnerships. So partnerships with fintechs, partnerships with technology players, you'll be seeing that partnerships relating to interoperability, especially in South Africa, we're seeing a lot of white spaces on the payment side of it. So you'll be seeing a little bit more flavor from that perspective. With regards to, let's say, the white spaces with regard to payments, we see with the changes with the Reserve Bank and what's happening with PayShap. We're looking at the merchant side of it as well as international money transfer and global payments. So you'll be seeing a lot more from that perspective from how we see -- how we're going to increase digitally active customers in the base.

Next 2 questions from Harry Botha from Bank of America. Are you guiding to slightly lower revenue growth in second half '26 despite higher loan growth potential? Can you provide more detail? Is it mainly Africa Regions that's a headwind? Number 2, how do you see Africa Regions revenue and earnings growth potential into 2027?

Charles and Deon, I could share that question. And then who wants to go first.

Yes. I think, Harry, I've answered it in Ross' question. We are expecting close to high single-digit asset growth. I think we've commented on the wholesale growth that we are expecting, and that's SA and Africa Regions. It's really NIM compression out of Ghana into H2 that causes that. I think there's -- maybe the evolution into 2027. Charles, do you want to pick that up?

Yes. And I think it kind of alludes back to what I said earlier. I think as we believe you're nearing the end of the rate cutting cycle, the opportunity in terms -- well, first of all, the NIM compression should start to slow dramatically. And then secondly, the opportunity in terms of growth, in terms of fueling some of these countries, the economies in line with the sectors and segments that we are pursuing, we believe ultimately, that should lead to certainly an improved situation in terms of volume, asset growth, et cetera.

Next question, James Starke, RMB Morgan Stanley. The credit loss guidance has softened from bottom half of the range to midrange. Please expand on the drivers of this change in guidance. Please expand on how you see NIM trending from here?

James, there are 2 elements there. In PPB, there has been a clear change in macro from last year when we looked at forward-looking coverage. So we provided for some of that already in the first half. Between ZAR 200 million to ZAR 300 million was the coverage that we built. So that would be first. The second one is in our CIB portfolio, they're currently sitting under the 20 to 30 basis points range. We do see some sector stresses emerging, and we'll think they'll get into the bottom end of that range. So those 2 things are part of that guidance. How do we see NIM trending from here? I think I've commented on H2 and then what we should see on year-on-year NIM. But I think to Charles' point, as we get to -- now that we're through the cutting cycle, we saw SA NIM quite stable. In fact, we saw margins expanding a little bit in SA. As we go into next year, certainly more stability. And as we enter the hiking cycle, that will have a natural expression then in NIM as well.

Next question, Chris Steward, Ninety One. Please can you unpack in a little more detail the extensively disappointing performance from CIB Africa Regions versus peers?

Thanks, Chris. Yes, look, I think if you look at the more detail, again, I'll probably repeat, the transaction banking business was obviously -- firstly, it's our largest business from an overall perspective, and that has obviously been impacted heavily by the rates matter that I discussed earlier. So the transaction banking business pulled us down. And then from a market perspective, where we previously would have seen an offset come through, we had a softer sort of run from a market-making perspective as well as key markets like Ghana and Kenya, where we had tighter margins from a client flow perspective as markets have more normalized.

Yes. And if I may sort of add, Chris, I think it's relatively a concentration issue. We are sort of highly concentrated in Ghana and Kenya in our Africa Regions business, which is why diversification is one of the 4 pillars of our strategy. Because of that concentration, if something happens in one of the market, it effectively has either a positive or a negative impact on the business. Whereas if we are far more diversified, that impact would have been cushioned and probably mitigated by the performance of the other countries. So it's a pure diversification play, which is why we have to accelerate the diversification of our business to mitigate some of these risks.

Next question, [ Mark Fackler ], Storm Capital Management. The group now appears to have largely solved the credit issue. Is the next phase of the turnaround primarily about revenue growth and improving Africa profitability rather than further credit normalization?

I think I'll ask each of the BUs to comment because this really speaks to what we do in the client interface. So maybe let's start with Leon.

Mark, just the growth factors is in focus now. I mean we've got our credit teams well established. We started looking at the margins that we create off lending model. So absolutely, I mean, we anticipate that the credit extension or our lending on our assets, that will definitely be growing quite strongly going forward and then matching that with the liability side. The Business Banking sits with quite a nice liability base, and there's a lot of opportunity for us to cross-sell into that base with our various assets.

I think for PPB, it's more in the growth phase. So accelerating customer growth, accelerating digitally active customers and then in every respect of the business units, we are seeing good growth and good traction across. So we are fixing some of the fundamentals, but also looking at how to accelerate that in half 2 and towards the end of next year.

From a CIB perspective, it's really just about making sure we know which sectors are going to be those growth sectors and then backing the right customers within those growth sectors. And I think that's across both SA and Africa Regions that we will continue to manage that.

In a sense, I mean, if I may sort of say -- I mean, this speaks to -- it's at the core of our strategy, which is really driving customer-led growth, accepting that there may be tailwinds that come from either interest rates or trading revenues. But at the end of the day, we have to increase the proportion of our top line that comes from client activity. So the primary thrust is about which segments we want to play in with what solutions and how do we accelerate the growth. And that's at the core of each of the business unit strategy. Secondly is about derisking the concentrations that we have. Which markets are we underweight, which client segments should we be going for and what products and solutions should we be accelerating the rollout of so that we can reduce this dependence on deposit sort of NII. And I think as we articulate and talk to the strategies of the business unit in November, you'll get further details on the plans around that and the timing of the rollout of those plans.

Next question, Asanda Notshe from Mazi Asset Management. In Africa Regions and in hindsight, should the businesses have been more aggressive in terms of deposit growth, especially looking at what peers did by comparison?

Charles?

Yes. I think I would actually say probably the opposite that what we want is quality asset-driven growth around our client franchise. What we don't want is those lazy, expensive term deposits that ultimately are landing up as just being placed into government bonds, et cetera, where you might, at a certain point in time, get the yield uptick, but it isn't really true franchise-enhancing value. So it goes back to our strategic focus, which is around ensuring we're driving the right business that drives our NIR, that increases your CASA deposits and allows you to maximize your overall franchise value and delivering your deposit income in the right way.

Next question, Chris Steward, Ninety One. What is the relevant policy rate in Ghana one should look at to collaborate endowment impacts and the timing thereof?

Deon?

Yes. The biggest driver, Chris, is the treasury bill rate. It's where -- if you look at Ghana, we've got a very low loan-to-deposit ratio. I think it talks to Charles, If you've got more retail assets, you've got far more pricing power. But at the moment, that surplus liquidity is invested short term. So the treasury bill is kind of where the local market prices on that surplus liquidity. That was -- that's currently anywhere between 5% and 6% at the moment. Also, that treasury bill rate factors into the asset repricing rate. About 1/3 of that is how [indiscernible] feeds into that asset repricing rate. So it's quite an important rate in the short term in that market. Bonds are not trading in that market. They've only recently started reissuing after their previous sovereign default. So a lot of that is short term and treasury bill is really the endowment impact that we face.

Next question, Jarred Houston, All Weather. Given the endowment headwinds, is it still reasonable to expect Absa to generate an ROE within its medium-term target range in 2027, i.e., 16% to 19%?

Yes, absolutely. I mean you have to think about what is actually likely to sort of do the positive unintended sort of or the positive sort of aspect of some of the headwinds that we are facing now is that it effectively rebases the interest rates in Africa Regions. And secondly, because of the muted volatility that we have seen in our trading business, it also rebases in a sense, your global market trading revenues. But those are 2026 headwinds. As you think and look beyond that, we are starting from a completely different base from an interest rate point of view and trading revenues point of view. If you add on top of that some of the plans that are being developed and will be executed within the business units of accelerating client acquisition cross-selling, the measures that we're implementing around cost management and trying to be more efficient as an organization as well as optimizing our own capital stack throughout our geographies and so on. There is no reason at this stage to believe that our medium-term targets are not realistic.

Next question, Daniel from Ashburton. Could you give more color on the partnership with DHL Express? The second question is beyond the delivery of the ZAR 5 billion in cost savings. How material is the remaining opportunity here? So is the heavy lifting to get 50% just all down to revenue?

Okay. Leon?

Thanks, Kenny. If I can deal, Daniel, with the DHL. It's a partnership agreement. It's extending our relationship. What we want to do here is really about an incubator model for entrepreneurs. We want to play across the continent. And we want to support small businesses with -- we'll bring in the banking component. So we'll bring in the trade finance pieces. We'll look at finance, working capital, transactional relationships and then DHL will bring skill sets around it. So they'll help to develop and they'll fund some of the skills development on basic business skills and how to grow our business, how to scale it. And we will try and open up opportunities trading into broader markets, especially Europe, where they've got a very large presence, Asia, and we'll see how we actually build out small incubator businesses for -- between ourselves as a partnership.

Next question, James Starke, RMB Morgan Stanley. Please give us an update on the progress to improve diversification. Where are you looking? What are you looking for? How far advanced these initiatives might be?

Charles, do you want to comment on diversification of our African footprint, and then we'll add if there's anything to be added.

Yes, sure. Thanks, James. I think -- well, first of all, I would put it into probably 3 buckets. There are markets that we're in where some of our structures are somewhat capital inefficient. And I think we are reasonably well advanced in terms of starting to move those into hopefully a better position in line with how we see the kind of growth and the opportunity across the continent. The second one I would just touch on are the bolt-ons. As you know, at the moment, we are bringing on the book from one of our competitors in Uganda, and we expect to close that towards the back end of this year. And we will always look at other opportunities as they see fit if they align with our franchise. And then lastly, as we start to explore new markets in line with our businesses and where they see their sectors and segments and their client franchise and where those opportunities occur. We've spoken previously about getting a rep office in Angola, which approval has come through, and we now start to move that forward. And we will look at other opportunities as we see fit to add to the franchise in terms of new markets.

And you wanted to comment on cost...

Yes, Daniel, you had a question on whether all the heavy lifting is down to revenue from here out. Look, key to the medium term is positive JAWS. Revenue is certainly an aspect and how kind of NIM drag unwinds is certainly an aspect into the future. But we definitely have more work to do on costs. We've dealt with some of the low-hanging fruit now. As the business units have gone through each of their cost bases, there's certainly structural adjustments that we will have to make in the medium term. So it's going to be both revenue and costs to get to our medium-term objective of 50% cost-to-income ratio.

Well, it seems that those are all the questions that we had. Well, thank you very much for the time and the questions. We'll have an opportunity to engage in one-on-one sessions, both at the group level as well as with the business units. If there are any further engagement or questions, we'd be more than happy to deal with those in those one-on-one sessions. That then brings us to the end of our session. Thank you very much for your time. We really appreciate it. Thank you.