Good morning, and thank you for joining us for Absa's 2023 results presentation. Before getting into the results, I would like to begin by thanking our over 37,000 colleagues who have served our 12.2 million customers with distinction in a difficult operating environment. I would also like to thank our external stakeholders for the ongoing loyalty and support of our business. Turning to our results, I will first share my thoughts on the current operating environment before giving an update on how our organization has fared strategically. I will spend time on our financial performance before handing to Chris to go through our performance in detail and provide our guidance for 2024. Thereafter, we will provide an update to our medium-term guidance and take your questions. The global sub-Saharan and South African economies entered the year on increased uncertainty.
At the beginning of the year, very high inflation prompted central banks to continue raising interest rates, though fears of an economic slowdown were moderated by the continued stronger than expected labor indicators and financial markets. Inflation has moderated recently, but remains persistently high and will likely see policy rates remain higher for longer. Geopolitical tensions remain elevated across the globe, with the Russia-Ukraine conflict, strained relations between the U.S. and China, and more recently, the conflict in the Middle East. Supply chains were already constrained by the Russia-Ukraine conflict, and the recent attacks in the Red Sea have only added to these pressures. Turning to our ARO markets and the tight global financial conditions, weaker commodity prices, and high inflation and policy rates weighed on economic activity.
Debt sustainability remained a key focus in some large markets, although the appetite for recent bond issuances, as well as the recent progress in debt restructuring negotiations, has seen some improvement in the outlook. Foreign currency scarcity has been a particular challenge for several countries across the continent. Economic performance was vArrieed, with East African economies generally fArrieng best, although performance in our presence countries remains well above growth in South Africa. The South African economy faced this difficult external environment along with its own internal challenges, although it avoided a recession in 2023, albeit with growth of only 0.6%. I will look at South Africa more closely, given its position as our biggest market, and it is evident that the operating environment remained challenging throughout 2023.
Load shedding reached record levels in 2023, although the reconnection of 3 units at Kusile in the second half of last year has seen a reduction in load shedding levels, with levels in the three months to the end of January being 45% less than the prior year. Business has also responded strongly to the lifting of the generation licensing thresholds, and we expect this to further alleviate the pressure on Eskom going forward. Unfortunately, the logistics infrastructure constraints are likely to drag on for longer. Freight rail volumes in 2022-2023 were down a third from the highs of 2017-2018. While the recent port congestion at the Durban and Cape Town ports highlighted the potential devastating impact on other sectors of the economy like resources, retail, and agriculture.
These infrastructure challenges are weighing on business confidence, with the latest private sector sentiment published by the Bureau for Economic Research at 30, which implies that 70% of businesses are dissatisfied with the prevailing business conditions. The SA consumer came under increasing financial strain in the year. Headline inflation remained above the SARB's target range for the majority of the first half of the year, before falling below 6% by mid-year and subsequently oscillated in the top half of the central bank's target range for the rest of the year. In response to this, the SARB increased the repo rate by a further 125 basis points in the first five months of 2023, in addition to the cumulative 350 basis points increase in 2022. This, together with a higher cost of living and muted wage growth, further eroded consumers' disposable income.
Consumer pressure is likely to remain elevated in the near term, at least until interest rates start to reduce. In August, I mentioned the alignment between government and business on delivery of key interventions in areas of energy, transport and logistics, and crime and corruption. This collaboration has seen progress since its inception nine months ago, but we need to capitalize on the momentum and urgently implement the necessary reforms to see tangible progress in creating a sustainable and inclusive economy. Our strategy remains consistent, and we are confident that it remains relevant. As I will show later, our consistent execution against it has created a solid foundation as we strive to become a leading Pan-African bank. Furthermore, we remain confident that the medium-term targets supporting the strategy remain relevant, and I will spend more time on this at the end of the presentation.
Before getting into the 2023 results, it is important to unpack what has fundamentally changed within the business following our separation from Barclays PLC. I will do this on a business-by-business basis. The RBB SA business in 2018 was in material decline across all major metrics, including customer numbers, digital usage, and balance sheet market shares, with performance supported by unsustainable pricing structures. The business followed a systematic approach in correcting the fundamentals, starting with regaining our fair share of the balance sheet market while our customer experience, pricing and propositions, and digital channels were redeveloped. In addition, the banc assurance business was integrated to create seamless customer journeys. Our CIB business in 2018 was primArriely a South African business, following an asset-led approach, and required a shift to becoming a more diversified Pan-African business with a stronger client franchise.
In ARO RBB, business was heavily focused on four key retail markets, with our product proposition out of date as consumers within the ARO markets increasingly became more digitally focused. The systematic approach to fixing the businesses within the old RBB SA construct focused on three key areas. These being creating value for money propositions, integrated digital and data enhancements, and creating a seamless and empathetic customer experience. Over the past three years, the business has eliminated ZAR 1 billion in fees that were punitive to customers and redeveloped the product propositions across the spectrum. This has seen a dramatic turnaround in customer perceptions, with 65% of surveyed customers rating Absa as best value for money. Our digital efforts have been noticed by customers, and they have become more comfortable transacting on our digital channels.
Transactions on our Absa app have increased by over 200% since 2018 to 2.7 billion transactions in 2023, while digital sales have increased significantly to account for 22% of retail sales from 3% in 2020. These changes, together with a more empathetic customer engagement, have been recognized by customers and have seen customer experience scores, a key measure of how customers perceive our services and products, improved by 30% since 2020. Our efforts on franchise health are translating into tangible progress in the customer franchise, as we are seeing growth in customer numbers as well as deeper relationships with our existing customers.
Acquisition levels have improved across all areas of the business, with new to bank retail transactional accounts increasing by 21% in 2023, with growth in the youth segment, a key focus area, growing by 38%. Turning to our Relationship Banking business, it is pleasing that new account sales have increased by 42%, largely driven by the SME segment, which increased 48% year-on-year. The integration of the bancassurance model across both the life and non-life businesses into the banking customer journeys has seen continued traction, with over 978,000 standalone policies sold in 2023. These improvements in acquisition levels are converting into customer number growth, with our active customer numbers increasing to 9.8 million, having increased each year since 2020.
This has been supported by active transactional customer growth, which grew by 4% to 5.8 million customers in 2023. These systematic changes have proven effective in deepening our relationships with customers, with new to reward sign-ups increasing by 81% since 2018, with 31% of existing customers moving up a tier in 2023. While the number of digitally active customers has increased by 20% annually since 2018 to 3 million customers. This has all translated into the average product holding per customer, improving to 2.64 in 2023 and indicating that customers, on average, have 0.2 products more than in 2018. In line with the strategic ambition announced in 2019, our CIB business has diversified into a Pan-African business with a stronger client franchise.
This has been anchored by the build-out of the corporate banking franchise over the past five years, with this business now constituting 47% of revenues in 2023, while client acquisition continues to be strong, with about 500 new clients added in 2023. The diversification into a Pan-African CIB business has gained traction, with CIB ARO now 42% of revenues, although there is still some way to go to achieve our target of 50%.
The business continues to build global corridors for our clients, and the imminent opening of our office in China will allow us to be closer to existing clients, as well as establish new relationships with clients across our markets in Africa as we connect trade and investment flows into Africa. The diversification of the business into transactional banking and Africa has led to an improved returns profile, with a return on regulatory capital of 23.9% compared to the 17.8% in 2019. Our ARO RBB business has seen a strong turnaround since 2018, as we have created a more diverse and sustainable business, although there is some way to go still. We have successfully diversified the business from a reliance on our top four markets, and our efforts to grow business banking are on track, with its contribution growing to 28% of revenues.
Improved propositions, as well as focus on customer experience, has seen customer numbers grow by 11% on a compound annual basis since 2018. Customers in our ARO markets are consistently becoming more digitally focused, and our efforts to reinvigorate our digital propositions through vArrieous initiatives, including digital onboarding, have seen digital customer numbers more than double since 2018. Reducing the cost-to-income ratio in ARO RBB has been a key focus over the past 5 years, and I am pleased to say that we are starting to see progress from our efforts to leverage our existing infrastructure and digitizing client transactions where possible. This has seen our cost-to-income reduce from the mid-70s to 66.7% in 2023, although we see further productivity benefits within this space.
An engaged colleague franchise is one of our competitive advantages, and our efforts over the past few years are being recognized. The launch of our group purpose, values, and the eKhaya staff incentive scheme in September, whereby over 35,000 colleagues became shareholders in our group, has created an increased sense of commitment and accountability across the business. This has been reflected in our colleague engagement survey, where we saw further improvement across our vArrieous categories for the third straight year. Our colleague engagement levels are at their highest ever, as evidenced by our employee NPS improving to 36% from 12% in 2021, whilst we have seen retention of top talent improve. We have invested heavily in our employee development, with 65% of our spend focused on critical, scarce, and future skills to ensure we have the required capabilities now and in the future.
We have made progress on diversity and inclusion, with our Black senior management representation improving by 2% year-on-year to 58.5%, while we increased our female representation by 1% to 39% at senior management level. Our progress in advancing our organizational culture and people practices to sustain Absa as a great place to work has been recognized through vArrieous awards, including the Top Employer Certification in five countries for the third year in succession, with a score of 87.1% against a global benchmark of 85.2%. As I said in August, we want to be an active force for good in everything we do, specifically within our three focus areas of climate, financial inclusion, and diversity and inclusion. Pleasingly, we have made progress across all three of these areas over the recent past.
We continue to maintain a leading position in sustainably linked finance, with over ZAR 84 billion originated in the last two years. We see significant growth in this space over the medium term as we contribute to this national and global imperative. We have made progress since our net zero commitment by setting 2030 targets to reduce our financed emissions in coal, oil, and gas sectors. Our commitment to assist the unbanked and underbanked populations to achieve financial inclusion and accessibility saw the launch of ChatWallet, a secure WhatsApp-based digital product with no monthly charges, while our mobile branches, digital solutions for small businesses, UIF support on our ATMs, and affordable housing loans have also made an impact. Lastly, our efforts in diversity and inclusion included a program in Kenya, where over 35,000 women participated in a mentorship program for women-led micro, small, and medium-sized enterprises.
All of this has resulted in an Absa Group in 2023 that is a very different business to 2018 and is in a much more resilient position to weather tough economic impacts. Looking at this in a bit more detail, we have strengthened our balance sheet with both capital and funding and liquidity ratios having improved since 2018, with these now at the top end of our board target ranges, despite our balance sheet growing by 43% since 2018. Since 2018, we have significantly improved the contribution of our ARO operations from 20% pre-provision profit to 29%, aligning with the more attractive economic growth, while our CIB business increased to 32% from 28%, with growth in both Africa Regions and South Africa.
These focused efforts to diversify our business stood us in good stead in 2023, given the pressure on the SA consumer and the muted economic growth in South Africa. A key strategic shift in 2018 was to reignite revenue growth that had been relatively pedestrian in the period leading up to that point.... Over the last five years, we have grown revenues at 7% on a compound annual basis, while ensuring that we create an appropriately efficient business, as can be seen by our cost-to-income ratio declining to 52.1% from the 58% levels in 2018 and 2019. Moving to our 2023 performance, it is fair to say that our earnings were below the expectation we had set for ourselves as we entered the year, as the operating environment deteriorated more than what we initially anticipated.
Earnings growth was muted at 1%, but it was pleasing to see pre-provision profit grow by 6%, driven by 8% revenue growth, which is similar to our trajectory in the recent past and highlights the positive growth momentum we have created. Our cost to income ticked up slightly in the year to 52.1%, largely driven by investments in the sustainability of the franchise, with growth in marketing and frontline staff hires. Our credit loss ratio increased to 118 basis points from 96 basis points and was above our through-the-cycle range of 75-100 basis points, largely from increased consumer strain in the SA retail portfolios. I will spend a bit of time on our credit performance, but Chris will unpack it in more detail.
To understand our credit performance, we need to reflect on the trajectory of the retail portfolios pre-separation from Barclays. As I explained earlier, we were losing market share across customers and the balance sheet in the period leading up to 2018. In fact, our retail advances flow market share in the period between 2012 and the end of 2017 was only 4.5%, resulting in our overall market share declining by over 3% in that period. To arrest the decline and reconnect with customers, we needed to grow our balance sheet, and this was done in a measured way with our flow market share in the period from 2018 to 2023 at our deemed fair share of 24.5%, which is similar to the starting market share position in 2012.
This means that our retail lending books are relatively young and need to mature, which they started to do in an orderly manner in 2021 as the rate environment gradually reverted towards a hiking cycle. However, the impact of rates increasing from 7.75% to 11.75% from March 2022 to May 2023, as well as inflation averaging 7.5%, created a shock for consumers, which is evident in the current delinquency profiles. Whilst our impairment charges are elevated, these vintages are still profitable on a risk-adjusted margin basis, and we expect them to be profitable over time. This doesn't mean that we haven't taken proactive action in the portfolios. On our front books, we have responded with appropriate risk management cuts to higher risk categories within our unsecured portfolios, while affordability buffers have been increased, particularly in secured lending.
We also proactively invested in our collection capabilities in 2022 as we built capacity, as well as rolling out digital capabilities to support our collections and recovery teams. Chris will spend some time on it later, but it is important to note that while our structural interest rate hedge provides margin stability over time, it has been profitable for the group since its implementation. This very stability it provides was a headwind to earnings, given the rapidly increasing rate environment as we couldn't offset the elevated impairments with the positive endowment impact. Despite this, our hedging strategy remains a key component of our long-term financial architecture. Our return on equity of 15.3% was lower than 2022's 16.4%, reflecting the low earnings growth, but remains above our cost of equity.
However, we believe our underlying returns were better than the 15.3%, given the impact of some significant items in 2023 that Chris will touch on shortly. For our shareholders, the dividend per share increased by 5%, which is faster than earnings growth, as we increased our payout ratio to 55% in line with our guidance. Looking at our business units briefly, the benefit of having a diversified franchise is clear when looking at earnings performance. The Product Solutions Cluster had a divergent performance, with the secured lending business impacted by the higher impairments. The insurance businesses grew strongly on new business volumes and lower claims. Market sentiment in secured lending remains low. The businesses are focusing on quality production while working out the non-performing loans. At the same time, the insurance businesses continue to further integrate and leverage the bancassurance opportunity.
Everyday Banking has seen traction in customer acquisition and is deepening relationships through the empathetic customer experience and its revised propositions I discussed earlier. However, the focus is on accelerating this trajectory now that the fixed phase of the strategy is over. The reorganization of the Relationship Banking business into a segment-led business was completed in 2023. The segment-led approach, along with the investment in additional frontline capabilities in 2023, has shown some improvement in its leading indicators, and this is expected to continue into 2024.... The CIB business continued to show strong momentum in 2023, and its diversified construct helped to deliver strong earnings growth despite the impact of currency dislocations, particularly in Nigeria. The business has momentum behind it, specifically in the Africa Regions, and will look to continue growing its key focus areas.
Momentum in the ARO RBB business continued into 2023, with strong customer acquisition and improved efficiency. However, the returns in this business remain below its cost of equity, and the focus in the medium term is to generate a return above the cost of equity. As I said earlier, we remain committed to our strategy, and we continue to consistently execute against it. We maintain our orientation towards growth as we work towards delivering our medium-term targets. I will now hand over to Chris to discuss the financial results in more detail.
Thanks, Arrie, and good morning, everybody. My presentation covers our normalized results, which better reflect our underlying performance as it adjusts for the remaining consequences of separating from Barclays. We reconcile these with the IFRS results in our booklet. However, it is important to note that since the impact is relatively small, we will no longer publish normalized financials in 2024. Starting with our income statement, headline earnings increased 1% to ZAR 20.9 billion, with diluted HEPS up the same amount. This outcome was lower than our expectation, but resilient given the operating backdrop and the items that we dealt with in these results. It is clear from this graph that our earnings growth was driven by net interest income growth, which underpinned 8% revenue growth to ZAR 105 billion.
Net interest income increased 12%, reflecting 10% higher average interest-beArrieng assets and slightly higher margins. Non-interest income rose 1%, which I will unpack later, as the underlying growth was higher. Operating expenses increased 10% as we continued to invest in the business, which will generate future revenue. These combined to generate 6% higher pre-provision profit that exceeded ZAR 50 billion for the first time. Our credit impairment charge rose 13% to ZAR 15.5 billion, largely due to the impact of higher interest rates and inflationary pressures in South Africa, mostly in our retail business, which outweighed a large Ghana sovereign impairment charge in the base. The increase in other included a loss on net monetary position that reduced our earnings by about 2% on a net basis as we applied hyperinflationary accounting in Ghana.
Our strong net interest margin widened slightly to 4.66% from 4.56%, mainly due to higher policy rates across our business. Unpacking the moving parts, our lending margin improved by 2 basis points as a favorable composition impact, largely due to slower home loans growth, outweighed lower margins in ARO Retail. Deposit margins widened noticeably by 22 basis points, largely due to the impact of higher policy rates and deposit endowment, which offset faster growth in wholesale funding in South Africa that was negative for composition. Higher average policy rates and growth in South African equity endowment balances added 10 basis points to the overall margin before hedging, as prime rates increased by 125 basis points during the year to average 11.4%, 2.8% higher than in 2022.
Higher policy rates and equity balances across Africa Regions also widened our margin by 2 basis points. The endowment uplift was offset by a material reduction in the contribution from our structural hedge. It is worth covering our structural hedge release separately, given the sizable swing in its contribution. Since inception in 2006, this hedge in South Africa has released about ZAR 17 billion to our income statement. Due to the rolling nature of the hedge program, our group margin is less volatile through the cycle. It provides protection against low rates, although we are still positively geared to higher rates, albeit less so than unhedged banks. Our structural hedge has performed exactly as it was designed to in recent years.
It provided significant protection to our net interest margin when SA policy rates were very low in 2020 and 2021, releasing ZAR 5.7 billion to our income statement during those years. Given the significant 475 basis points increase in the policy rates from November 2021, our hedge released a debit of ZAR 1.6 billion to our income statement in 2023, a ZAR 3.2 billion year-on-year reduction. The after-tax cash flow hedging reserve relating to the program reflected a debit balance of ZAR 1.4 billion as at 31 December 2023, from a debit of ZAR 3 billion a year earlier. However, the overall investment grade on our program is increasing as we roll over hedges at higher rates co mpared to those that are maturing, particularly swaps entered into during 2020 and 2021.
Post our structural hedge, our interest rate sensitivity is a 1% decrease in policy rates will reduce our net interest income by almost ZAR 950 million, of which ARO countries constitute just over ZAR 700 million, and South Africa is almost ZAR 250 million. Turning to our balance sheet, total loans grew 5% to ZAR 1.27 trillion. Group loans to customers rose 8%, while loans to banks fell 28%. South African customer loans grew 7% to over ZAR 1 trillion, and Africa Regions increased 14% or 17% in constant currency to ZAR 160 billion. Given high policy rates, loan growth slowed slightly across most of our divisions. Product Solutions Cluster loans grew 4% to ZAR 415 billion, although the average was 7%.
Everyday Banking increased 7% to ZAR 72 billion, largely driven by growth in Cards. Relationship Banking grew 8% to ZAR 146 billion, given continued momentum in the agri portfolio and commercial asset finance, particularly in the transport and logistics sector, while overdraft utilization remained muted. ARO RBB loans grew 9% or 13% in constant currency to ZAR 79 billion, with growth across Personal Loans, retail mortgages, and commercial lending. CIB customer loans grew 12% to ZAR 484 billion, up 13% in constant currency. CIB SA grew 11% to ZAR 402 billion, with foreign currency loans and Commercial Property Finance both up 12%, while term loans rose 4%. CIB ARO increased 19% or 21% in constant currency to ZAR 82 billion.
While our retail loan growth in South Africa slowed due to the difficult economic environment, our market share remained flat at 22%. Home loans, our largest book, grew 3% as our market share remained stable at just below 24%. However, our production dropped by 27% as applications fell materially across the industry, given the subdued property market. Approval rates also reduced. Vehicle and Asset Finance rose 6%, with 5% higher production, despite new car sales declining 3%. Our market share improved slightly to 25%. Margins are stable, although pressure on new business pricing continued due to increased competition. Credit card grew 8%, reflecting strong new account sales, limit increases, and higher utilisation, and 5% growth in turnover. We remain the largest by market share at 26%, excluding our large Woolworths Financial Services book.
Personal Loans increased 3%, despite production declining 6% as we reduced our risk appetite. Personal Loans remain a small component of our retail lending, and our 11% market share is very low. We are managing our risk appetite carefully in a difficult environment for the SA consumer. Deposits rose 8% to ZAR 1.3 trillion and accounted for 86% of our funding. Customer deposits grew 9% to ZAR 1.2 trillion, while bank deposits declined by 3%. Excluding 7% lower repurchase agreements, total customer deposits were up 9%. Everyday Banking customer deposits grew 7% to ZAR 309 billion. Low-margin deposits grew faster, with investment deposits up 10%, mainly due to our Dynamic Fixed Deposit. Higher-margin transactional deposits declined 5%, reflecting the adverse cost of living pressures.
Our retail deposit market share decreased slightly to 21%, although it increased marginally in the second half. Relationship Banking deposits increased 15% to ZAR 231 billion, with a similar shape to retail, given strong 24% growth in saving and investment deposits, while transactional deposits were flat. ARO RBB deposits rose 10% or 14% in constant currency to ZAR 121 billion. The largest category, transactional deposits, grew 10%, while investment deposits increased 17%. Deposits are also a priority for CIB. Total CIB customer deposits rose 7% to ZAR 435 billion, with average deposits 10% higher. CIB SA customer deposits grew 3% to ZAR 327 billion and were flat, excluding repurchase agreements, despite strong growth in foreign currency and notice deposits.
cheque deposits fell 18% due to a substantial reduction in a low-margin National Treasury tax and loan deposit. Excluding this reduction, cheque deposits grew 1%. CIB ARO customer deposits rose 21% to ZAR 107 billion, up 22% in constant currency, with strong growth across all markets. Growing capital-light revenues remains a priority for us. Total non-interest income grew 1% and was flat in constant currency to ZAR 36.6 billion, to account for 35% of our revenue. While non-interest income growth was muted, the underlying trends were better. Excluding the impact of selling Absa Asset Management, total non-interest revenue increased 4%. The largest component, net fee and commission income, grew 2%, reduced by the asset manager fees in the base, which is now reflected in the associates line. Within this, transactional fees and commissions increased 4%.
cheque accounts and credit Card fees grew 5% and 9% respectively, while electronic banking fees increased 5%, partially offset by the investment management sale. Merchant income rose 5%, reflecting higher volumes. Net trading, excluding the impact of hedge accounting, decreased 5% to ZAR 7.3 billion. Overall, Global Markets income declined 3%, largely due to dislocations in foreign currency markets, particularly the naira, largely in December. Growth in our insurance revenues remained strong, up 16%, highlighting the benefits of integrating our banca nsurance business. This is evident at a divisional level, too, as Product Solutions Cluster non-interest income grew 15%, with strong growth in SA Insurance, Absa Trust, and Home Loans.
The largest component, Everyday Banking, was flat at ZAR 12 billion, reflecting migration to lower margin digital channels and ZAR 500 million in price reductions and investments in Absa Rewards that offset growth in transactional activity and customers. Everyday Banking non-interest income growth was 5%, excluding these pricing reductions. Relationship Banking increased 1% to ZAR 5 billion due to 4% growth in digital revenue, offset by 7% lower cash volumes that declined industry-wide as customers continue migrating to digital channels. Card acquiring revenue declined 8% as increased transaction processing fees offset higher turnover. Despite 4% customer growth, transactional revenue was flat given pricing initiatives in the SME segment. ARO RBB grew 12% or 10% in constant currency to ZAR 4.5 billion, driven by 16% growth in active customers and increased activity.
Banking revenue rose 15%, with 24% growth in foreign currency revenue and Card up 25%. ARO insurance revenue declined 17% due to increased claims and higher reserving for some products. CIB's non-interest revenue was flat at ZAR 10 billion, 1% down in constant currency, largely due to lower trading revenue in South Africa and a non-recurring litigation recovery in the prior year. These offset increased volumes in transactions and trade finance in corporate, solid client franchise growth in Markets ARO, and positive revaluations in non-core private equity. Moving to cost, our operating expenses increased by 10% or 10% in constant currency as we continue to invest in our franchise. Although our cost-to-income ratio increased slightly to 52%, it remains significantly lower than the 58% in 2019.
Staff costs rose 13% to ZAR 31.5 billion, accounting for 58% of total expenses, reflecting salary increases and people investments. Staff numbers grew 5%, predominantly in frontline business areas, mostly in Relationship Banking. Bonuses grew 9%, given a slightly lower incentive pool, offset by prior year under accrual and lower deferrals. Our BEE transaction was completed on 1 September 2023 and included for four months, adding ZAR 241 million to costs. Non-staff costs grew 7% to ZAR 23 billion. IT costs increased by 9% to ZAR 6 billion due to further investment in digital platforms and cybersecurity spend. Amortization of intangible assets rose 2%, reflecting continued investment in digital, automation, and data capabilities. Total IT spend, including staff, amortization, and depreciation, increased 6% to ZAR 13.4 billion, or a quarter of group costs.
Marketing rose 18% on increased advertising and sponsorship spend as we reinvested in our brand and product presence in the market. Equipment costs grew 32% as power costs grew significantly to about ZAR 200 million due to worsening load shedding in South Africa. Depreciation declined 3% from reduced utilization of physical IT infrastructure and further optimization of our property footprint. Professional fees also reduced 3% as we used less external resources on strategic projects. Cash transportation costs increased 3%, reflecting growth outside South Africa, offsetting lower volumes in South Africa due to the migration to digital banking and increased cash recycling. Other operating costs increased 27%, given higher fraud and operational losses, plus increased business travel. Lastly, we see opportunities to tactically reduce our discretionary spend in the near term, given the current operating backdrop.
We also see an opportunity to strategically improve our productivity, extract value from investments made, and reduce legacy costs. Examples of this include our corporate real estate and our retail banking distribution network, where we have seen some benefits already. We have mobilized a group-wide program to coordinate these efforts, which we expect to deliver value over the next 2-3 years. Moving to credit impairments, all our divisions besides CIB saw materially higher charges. Consequently, our credit impairment charge grew 13% to ZAR 15.5 billion. Given significantly higher policy rates and inflationary pressures, South African consumers remain under pressure, which is very evident in the large increases across our retail lending. There were also increased credit charges in CIB and Relationship Banking as the consumer stress impacted consumer-facing sectors adversely.
While credit impairments grew materially across some portfolios, home loans, Relationship Banking, and Card all increased off relatively low bases in the prior year. Similarly, although ARO RBB's credit impairments grew 30%, its credit loss ratio remains below its through-the-cycle range. Within CIB, credit impairment trends differed noticeably, as CIB South Africa doubled off a low base, but CIB ARO improved significantly from an elevated level to a net reversal. CIB's credit loss ratio is also below its through-the-cycle range. Credit impairment trends also diverged geographically. Given the difficult macro backdrop, South Africa's charge increased 45% to ZAR 13.8 billion, pushing its credit loss ratio to 125 basis points, well above our group through-the-cycle range. Conversely, driven by CIB ARO, Africa region's credit impairments fell 58%, improving its credit loss ratio significantly to a low 80 basis points.
Africa region's prior year charge included the large ZAR 2.7 billion charge related to Ghana's sovereign debt default versus a ZAR 300 million charge in 2023. Combining these drivers, our credit loss ratio increased materially to 118 basis points, well above our through-the-cycle range of 75-100. However, our credit loss ratio improved from 127 basis points in the first half to 109 basis points in the second half, reflecting normal seasonality as well as intense collections efforts. Unpacking the portfolios, Product Solutions Clusters credit loss ratio increased to 99 basis points from 65 basis points. Within this, home loans rose from a low 24 basis points to 58 basis points, while vehicle and asset finance increased to 208 basis points.
Both books had increased delinquencies, sustained pressure on the legal book, and inflows into debt review. Everyday Banking rose to 8.35% from 6.45% and 9.22% in the first half, reflecting elevated roll rates into late delinquency cycles. Card rose to 7.8% from 5.8%, while Personal Loans increased to 10.6% from 10.2%. Relationship Banking increased to 56 basis points, which is within its through-the-cycle range from a relatively low 45 basis points. The increase was due to higher single name charges in 2023 and non-recurring model enhancements in the prior year. ARO RBB rose from 164 basis points to 184, which remains below its through-the-cycle range.
Its charge reflects higher retail credit impairments in certain markets and increased single name charges in business banking. CIB's credit loss ratio improved from 27 basis points to 17, also below its through-the-cycle range of 20-30 basis points. CIB South Africa credit impairments doubled, resulting in a 22 basis point credit loss ratio from 12 basis points. The increase was largely due to a net release on the performing book in the base. Conversely, CIB ARO credit impairments dropped materially off a high base to a net reversal, primArriely due to reduced performing book charges. Our credit impairments reflect stage migrations of our customer loans overall, with non-performing loans increasing 20%, while Stage 1 loans grew 7%, slightly less than customer loans.
As a result, NPLs increased to 6.1% of total loans from 5.3% in the prior year and 5.8% at interim stage. Almost all the increases in NPLs came in the South African retail portfolios, with Product Solutions and Everyday Banking rising 31% and 26%, respectively, to account for 92% of the growth. The late stage, legal, and debt counseling portfolios within these books remain under pressure.... We remain well provisioned for a tough operating environment. Our NPL or Stage 3 coverage is appropriate at 45%. It reduced slightly due to elevated Product Solutions Cluster inflows that produced a younger mix of NPLs that carry lower cover. Total loan coverage rose slightly to 4.1%, which remains well above pre-COVID levels of 3.3%. The increase was due to a high proportion of NPLs.
Stage 1 coverage reduced to 66 basis points from 70 basis points due to macroeconomic vArrieable refreshes across the retail portfolios in South Africa, loan growth, and high-quality new business origination. Moving to divisional performance now, our results again show the benefit of diversification as differing credit impairment trends produced divergent earnings growth. Although all the businesses grew pre-provision profits, high retail and business banking credit impairments in South Africa were a material drag on these divisions' earnings, offset by strong earnings growth from CIB and ARO RBB. Product Solutions Cluster earnings declined 24% to ZAR 2.4 billion as credit impairments rose 64%. Revenue grew 5%, driven by 15% higher non-interest income, with Insurance SA up 17%. Net interest income increased 1%, reflecting competitive pressure on new business margins in home loans and high interest in suspense.
With costs increasing just 1%, its cost-to-income ratio improved further to 42.5%, and pre-provision profit grew 9%. Everyday Banking was similar, with earnings down 17% to ZAR 3.4 billion, as 36% higher credit impairments outweighed 7% growth in pre-provision profit. Revenue grew 6%, driven by 11% higher net interest income, while migration to digital channels and targeted price reductions meant non-interest income was flat. Costs were well managed, increasing 5% to improve its cost-to-income ratio to just below 53%. Higher credit impairments also reduced Relationship Banking earnings, which decreased 1% to ZAR 4.1 billion. Pre-provision profit growth was muted as 1% higher non-interest income constrained revenue growth to 5%. Costs grew 9%, given investments in digital and frontline staff.
ARO RBB earnings increased 27% or 31% in constant currency to ZAR 1.5 billion, largely on the back of strong 27% pre-provision profit growth. Revenue grew 18%, driven by 21% higher net interest income as loans rose 9% and margins widened. Non-interest income grew 12%, benefiting from 16% growth in active customers. Costs increased 15%, in part due to higher inflation. Although credit impairments rose 30%, its credit loss ratio remained relatively low. CIB earnings grew 23% to ZAR 11 billion, as pre-provision profit increased 13% and credit impairments fell 45%. Revenue rose 12%, again, driven by strong net interest income on volume growth and better margins. Non-interest income was flat, largely due to lower trading revenue in South Africa. With costs up 10%, CIB's cost-to-income ratio improved to 46%.
Lastly, Head Office, Treasury, and Other earnings reduced 90% to a loss of ZAR 1.4 billion, despite the significant reduction in Ghana sovereign debt impairment charges to ZAR 270 million from ZAR 2.1 billion. Hyperinflationary accounting in Ghana reduced Head Office earnings by ZAR 403 million, while costs related to our BEE transaction amounted to roughly ZAR 200 million post-tax in the second half. Increased cost of funds and a lower reset benefit in Treasury South Africa were also a drag. Head Office also included a ZAR 152 million profit from the investment management business for 11 months of 2022. CIB's contribution to group earnings increased noticeably to 49% from 42%, while ARO RBB rose to 7% of the total, excluding Head Office, Treasury, and Other.
Given their elevated credit impairments and lower earnings, Product Solutions Cluster, Everyday Banking, and Relationship Banking decreased to 44% of earnings from 52%. While lower earnings reduced Everyday Banking and Relationship Banking's returns, they remain relatively attractive at 24% and 26%, respectively. Product Solutions Cluster's return on regulatory capital remains well below our cost of equity, reflecting its sensitivity to credit impairments. Given its strong earnings growth, ARO RBB's returns improved further to 11%, although this remains well below its cost of equity.... Lastly, CIB's return on regulatory capital improved to 24%, a very strong performance. We continue to allocate capital based on sustainable expected returns, with a focus on growing capital light revenue over the medium term. Starting with CIB, we show it by activity and region, although it is run on a pan-African basis. Corporate continues to perform extremely well.
Earnings grew 30% to ZAR 4.3 billion on very strong 27% pre-provision profit growth and 10% lower credit impairments. Revenue grew 19% due to 24% higher net interest income. While Corporate's non-interest income growth was muted at 2%, it rose 15%, excluding a non-recurring litigation recovery in the base. Investment Banking earnings grew 18% to ZAR 6.7 billion, mostly due to 61% lower credit impairments, as well as lower taxation. Pre-provision profit grew 5%, although 8% higher costs exceeded 6% revenue growth as net interest income rose 13%. Investment Banking's non-interest income decreased 1% due to lower Markets SA revenue.
With a regional lens, CIB ARO earnings were exceptionally strong, increasing 63% to ZAR 4.7 billion on 26% growth in pre-provision profit and a net release in credit impairments off an elevated base. It contributed 43% of CIB's total earnings. CIB South Africa earnings grew 3% to ZAR 6.3 billion, driven by 5% income growth and lower taxes, which offset significantly higher credit impairments off a low base. Unpacking the Product Solutions Cluster, its lending businesses were a material drag on earnings, offsetting solid growth from Insurance SA. Home Loans earnings fell 36% to ZAR 1.3 billion, as credit impairments increased 160% off a relatively low base to negate 2% higher pre-provision profit. Revenue growth slowed to 1%, dampened by flat net interest income on lower loan production and margin pressure.
However, healthy 17% higher non-interest income and flat costs improved its cost-to-income ratio further to 33%. Vehicle and Asset Finance earnings fell 48% to ZAR 236 million, as 29% higher credit impairments outweighed solid 12% pre-provision profit growth. Revenue growth of 10% exceeded 6% cost growth, improving its cost-to-income ratio to below 36%. Insurance SA earnings grew 13% to ZAR 1.2 billion, with life insurance up 14% to ZAR 1 billion, driven by 22% revenue growth, partly offset by higher technology cost and amortization. Non-life insurance earnings increased 7% to ZAR 192 million, as 6% revenue growth outweighed higher claims. Moving to Everyday Banking, significantly higher credit impairments offset strong pre-provision profit growth in its unsecured lending businesses.
Given 49% higher credit impairments, Card earnings fell 56% to just ZAR 369 million. Solid 12% revenue growth, combined with well-managed 6% cost growth to produce 6% higher pre-provision profit and improve its cost-to-income ratio to 41%. Similarly, Personal Loans pre-provision profit increased 14% as revenue grew 11%, while costs rose 5%. However, 16% higher credit impairments increased its loss 27% to ZAR 98 million. Personal Loans remain subscale given its low market share of just 11%, and we continue to test the market for selective growth opportunities over the medium term. Transaction and deposit earnings declined 5% to ZAR 3.4 billion on a combination of 61% higher credit impairments and 3% lower pre-provision profits. Non-interest income fell 2%, given targeted fee reductions and continued migration to digital channels.
However, excluding the former and the ZAR 126 million Sasria insurance proceeds in the base, underlying non-interest income grew 5% in line with costs. Similarly, Relationship Banking's earnings reduced 1% to ZAR 4.1 billion, as 33% higher credit impairments outweighed muted 1% pre-provision profit growth. Revenue rose 5%, driven by 8% higher net interest income, in line with 8% customer loan growth, while deposits increased 15%. Non-interest income grew 1%, with lower acquiring revenue and cash volumes offsetting 4% higher digital revenue. Costs rose 9% as Relationship Banking continues to invest in future growth through hiring frontline staff in SME and private banking and high investment spend on digital.... Shifting to a geographic lens, Africa Regions contributed significantly to our overall group growth during the period.
For starters, its strong 26% revenue growth accounted for 81% of our total group absolute revenue growth, given South Africa's muted 2% higher revenue. As a result, Africa Regions increased to 29% of group revenue from 25%. Given wide positive jaws, Africa Regions pre-provision profit grew 37% to ZAR 14.5 billion, while South Africa decreased 3% to ZAR 35.5 billion. Combining its lower credit impairment charge that I flagged earlier, Africa Regions' contribution to earnings was even more notable, as South African earnings fell by 18% to ZAR 14.7 billion, mostly due to the elevated credit impairments I highlighted earlier.
With Africa Regions earnings more than doubling to ZAR 6.3 billion, it accounted for 30% of group earnings for the period, from 13% the prior year, when Ghana's sovereign debt default dampened its earnings by ZAR 1.8 billion. Some aspects of its contribution may not be sustainable, such as CIB ARO's very low credit impairment. We also continue to monitor sovereign risks in some of our key countries, while relative currency movements were less favorable in the second half. Moreover, most of our subsidiArriees benefited from noticeably higher policy rates, which contributed to its 30% net interest income growth. However, we still see compelling growth opportunities across our existing Africa Regions portfolio over the medium term, in part due to far stronger economic growth in these markets than in South Africa.
We expect to see the contribution from Africa Regions increase over time. ARO RBB's strong revenue momentum and earnings recovery is very encouraging, given its significant revenue-driven growth in pre-provision profit, which in turn produced its substantial earnings recovery over the past two years. Although its profitability improved dramatically as its cost income ratio reduced materially, its return on regulatory capital remains an ongoing opportunity. We see room to improve its efficiency ratio further over the medium term, with opportunities on both the cost and revenue front. We remain well capitalized to fund our growth opportunities. While our CET1 ratio reduced slightly to 12.5%, it remains at the top end of our 11%-12.5% core target range and comfortably exceeds regulatory requirements.
Group risk-weighted assets increased 5% year on year to almost ZAR 1.1 trillion, in line with the growth in gross loans and total assets. We remain strongly capital generative, with profits adding 1.9% to the CET1 ratio over the year, partially offset by paying 1.1% worth of dividends. The strong CET1 ratio allowed us to increase our dividend payout to 55% from 53%, resulting in a 5% higher ordinary dividend of ZAR 13.70 per share. The reduction in other reflects a decrease in foreign currency translation reserve, a regulatory change on the treatment of investments in insurance entities, and an increase in capital deduction for the rise in intangible assets. That concludes my 2023 commentary.
Looking forward, the financial consequences for separating from Barclays PLC is no longer material, so we will no longer normalize our results for the first time since 2017, nor will we normalize for the impact of our BEE transaction, which is expected to reduce earnings by approximately ZAR 600 million. As a result, our 2024 guidance is based on our 2023 IFRS results, highlighted here on the far right. The main adjustment in 2023 was the ZAR 1.2 billion in costs, predominantly for the amortization of intangible assets created under separation. The remaining intangible assets, plus property, plant, and equipment on our balance sheet, totals ZAR 1 billion, and we expect amortization and depreciation charges to continue until 2027. However, the impact is no longer material. We expect it to reduce headline earnings by about ZAR 300 million in 2024.
Turning to our guidance for the remainder of the year, the economic environment remains tough and very uncertain. For the global economy, softer inflation should provide space for central banks to signal a turn in the rate cycle, though any reductions are likely to be delivered slowly and markets remain sensitive to both upside and downside surprises to inflation and economic growth. For South Africa, we expect the economy to grow by 1.1% in 2024. Infrastructure shortfalls, both electricity and transport related, remain a significant risk, while there is clear evidence that high interest rates are placing significant pressure on many consumer-facing sectors. Helpfully, headline inflation is expected to moderate towards the midpoint of the central bank's target band in the latter part of the year.
We believe that the current policy rate is the peak for this cycle and that the SARB is likely to deliver a measured pace of cuts beginning in the second half. We forecast the GDP weighted growth for our ARO presence countries will rise to 4.8% in 2024, led by East African markets. Ongoing infrastructure investment, strong multilateral support, and expectations of improving demand as the interest rate cycle turns more favorable, are likely to underpin growth, even as foreign currency scarcity in several markets is expected to improve slowly. Based on these assumptions, and excluding further major unforeseen political, macroeconomic, or regulatory developments, our guidance for 2024 is as follows. As mentioned, our guidance is relative to our 2023 IFRS financials rather than our normalized figures.
We expect high single-digit revenue growth, driven by both net interest income and non-interest income growth, with slower year-on-year revenue growth in the first half, given a high base in the first half of 2023. We expect high single-digit growth in customer loans and customer deposits. Reflecting higher average policy rates, our credit loss ratio is likely to remain above or through the cycle range of 75-100 basis points, but improve slightly year-on-year. Within this, we expect a lower SA consumer loss rate, offset by higher ARO RBB and CIB charges off a low base. We expect elevated first half credit impairments with a credit loss ratio similar to 127 basis points in the base, although the second half is likely to improve to the top of our target range.
We expect mid- to high single-digit operating expense growth, resulting in an improved cost-to-income ratio from 2023's 53.2%. As a result, we expect high single-digit pre-provision profit growth. We expect to apply hyperinflation accounting in Ghana again, with a somewhat larger earnings impact than 2023. Consequently, we expect to generate an ROE of 15%-16% in 2024, with the first half ROE below this range. Lastly, our Group CET1 capital ratio is expected to end 2024 in the top half of the board target range of 11%-12.5%. We expect to maintain a dividend payout ratio of around 55%. Given material base effects in 2023, we expect elevated credit impairments plus slower revenue and pre-provision profit growth in the first half to dampen earnings growth of a relatively high base.
Conversely, we expect higher second half revenue growth to support stronger pre-provision profit growth that, combined with a lower credit loss ratio, should support better second half earnings growth versus a relatively low base in the second half of 2023. Thanks very much for your attention. I'll hand you back to Arrie now.
Thanks, Chris. As I said earlier, we remain committed to our medium-term targets of a cost-to-income ratio in the low 50s and an ROE sustainably above 17%. While our cost to income is already in the low 50s, we expect this to improve, and we are confident that our underlying performance trends provide an improving pathway to achieving our ROE target on an IFRS basis by 2026, with the delivery of 4 key drivers. Firstly, growing our capital light revenues remains the key battleground for us. As I discussed earlier, we are seeing positive momentum in our customer metrics across the group. In our Product Solutions Cluster, the banca nsurance business continues to integrate into the banking journeys and the improving credit life strike rates, our digitally underwritten life insurance product, and the traction of non-life insurance in partnering with our vehicle partners provide significant opportunities.
In Everyday Banking, we have seen encouraging growth in our active customer numbers, and with our pricing revisions behind us, as well as a healthy deposit franchise, we will see better growth here. The investments we have made in increasing our banking capacity and Relationship Banking has already seen improving customer acquisition trends, and along with consistent innovation in our payments business, will provide a momentum shift. Our corporate and investment bank has seen strong client acquisition over the recent past, and we expect this to continue. While in ARO RBB, we see our recent acceleration in active customer numbers continuing, while we deepen our relationships with customers through our increased product propositions. Together, these will provide increasing momentum behind our capital light revenues over the medium term. Secondly is a credit loss ratio within our through the cycle range.
We have continued to take the necessary risk mitigation actions through 2023, and while we expect that the first half of 2024 will remain difficult, we see this starting to turn in the second half as interest rates are eased and we see a return to a more normalized credit loss ratio as consumer stress is eased. Thirdly, we see opportunity from improved productivity. Since we started our separation from Barclays, we have shown a strong track record for removing unproductive costs from our business. While our focus remains on growth, we are conscious that our operating environment is evolving rapidly and provides further opportunity to remove unproductive costs.... We have identified opportunities across the group and have mobilized a group-wide program to coordinate our efforts as we look to extract value from our recent investments, optimize our property portfolio, and leverage new technologies, to name a few.
And lastly, we see faster growth in our Africa business, given the more attractive economic growth expected in these markets and our positive momentum within them. Over the past 18 months, I have visited each one of our markets across the continent, and each time I have come back more assured of the growth opportunities present in each of these markets, and more specifically, that our business are appropriately positioned to deliver on these opportunities. In concluding, I would like to make the following remarks: The macro environment has been particularly tough in 2023, and we expect it to remain so for at least the first half of 2024, but we have shown that we can withstand it.
We continue to believe in the long-term benefits of our strategy, and as we have shown, it has created a much more resilient organization since 2018, and we are confident that it will deliver over the medium term. We will now take your questions on Slido.
Thank you. We've received a number of questions on Slido. Chris, let me facilitate the questions for us, read the questions, and then between you and I, we can, we can respond to the questions. If I start with the first question, speaks to PSC increased loans and advances in both home loans and VAF, yet these areas had some of the highest credit impairments of 160% and 29%, respectively. Similar case with EB cards and Personal Loans. So may you please shed more light on the lending strategies in these areas, given pressure on consumers?
Chris, why don't you just take a minute and speak to the loss rates. I'll speak to the strategy.
Great. Thanks, Arrie. I think firstly, on the origination, we did flag in the presentation that we, we've seen a slowdown in those consumer-facing portfolios in PSC and EB. The slowdown there is a combination of customer appetite as well as our own appetite to origination. The second aspect that I would highlight is that there is a relatively low base in impairments in the home loans business. You'll see that in the prior year, that was below our through the loss through the cycle loss expectation. So the base going into 2023 was therefore low, so you would have an elevated increase given that dynamic.
I think the broad theme that you see coming through there is the consumer, which is under pressure in South Africa, and that's a consistent theme that we've highlighted in our presentation.
Yeah. No, thanks for that, Chris. Just to add to that, I think, we did spend quite a bit of time in the actual presentation just to touch on the strategies and how important these are. And just for me to reiterate, as we think about origination strategies across, in fact, all our files, that we think about these very, very dynamically. Important when we reset our fair market share ambition since 2018 onwards, we didn't do that on expanding risk appetite. In fact, we did that on focusing very strongly on our customer onboarding processes and the actual experience that potential customers would have with us if they want to borrow from us. We looked at digitizing all those channels and processes to the extent that we can.
And then, of course, during that period of time, we also looked at our margin very carefully, and we expanded margin across all these products. So looking at the increase in the loss rates, that is not unexpected, but importantly, as we say, is that these vintages are still profitable on a risk-adjusted margin basis, and we expect them to continue to be profitable. If I go to the next question from from James. "Chris mentioned technical, tactical, my apologies, cost opportunities ahead. Please, can you give some color around the size and timing of these opportunities?" Chris, this is our commentary around our efficiency and productivity focus going forward.
Yeah, thanks, thanks, James. There are probably two elements here. The first is the tactical opportunities that you've highlighted. You know, we've certainly seen the operating environment remaining pretty challenging for the next probably six to 12 months. So therefore, we are looking very carefully at our discretionary costs that we roll out as an organization. We're trying to be very deliberate around that to protect our investment spend, because we see that as being critical to our long-term sustainability. And we think there's adequate opportunities for us to pull back on some of those buckets in order to make a meaningful impact.
You'll see that our guidance on costs is certainly lower than what you've seen our 2023 outcome to be. So that's on the tactical side. I'd also just flag in relation to this theme that we are also looking very, very carefully at productivity, you know, as a longer-term opportunity. And we certainly see something come through that,
Mm
... in the next 2-3 years. Less of a near-term opportunity, more of a, more of a medium-term opportunity, but we have mobilized the program.
Yeah. No, thanks, Chris. That covers it well. I think, James, what you hear from us is we're looking at this both in terms of the short term as well as the medium term. One of the controllables. We've made significant investments in the last 18 months, and for now we wanna make sure that we sweat those assets to get the returns that we are looking for, as we again reset our ambition to stay in the low-50s cost-to-income ratio with the trajectory that improves over the medium term. The next question, Chris, between you and I, is you speak about an immaterial difference between normalized and IFRS reporting going forward, but there is more than ZAR 1 billion amortization and intangibles amongst other movements. Do you expect this to be materially lower in full-year 2024?
Can you also talk through your drivers of higher CLR in H1 2024 to H1 2023? And I think the important thing there is our guidance is not higher.
Similar.
But why don't you touch on that, and then if needed, I'll add to that.
Great. Thanks. So, firstly, on separation, and I'm going to talk bottom line. You would see from our results that the impact of our separation items reduced our earnings by roughly ZAR 900 million in 2023. You would have also seen that in our guidance, we are highlighting that the impact of separation is substantially lower in 2023, at about ZAR 300 million. That talks to the remaining book value of our assets, or originated or created through separation becoming pretty small. You'll see that there's only about ZAR 1 billion left on the balance sheet, as of the end of 2023. And from 2024 onwards, we certainly expect that to become a even smaller component of our performance.
On the drivers of our 2024 first-half loss expectation, Arrie has highlighted that our guidance is for an outcome in the first half, which is similar to the first half of 2023. There are some moving parts within that. I think in our 2023 performance, we would have highlighted to you that our CIB business and our RBB ARO business is below the through-the-cycle loss expectations. So we expect that to increase in 2024. And some of that is likely to manifest in the first half. We also expect our retail, our consumer-facing portfolios to remain elevated in the first half, and it's the combination of those items that then plays into the guidance that we've provided.
I know you haven't spoken about this directly in your question, but just to highlight that our expectation for the full year is that our losses reduce slightly. So we do expect the lower interest rate expectations, and I'll touch on that in a later question as well. But also all of the actions that we brought in, whether that be on origination or collections, to bear fruit from the second half of this year.
Yeah. Thanks, Chris. I think just to add to that, I think, clearly what you're heArrieng is two of our portfolios are at seasonally low loss rates, which is our ARO business and our CIB business. With our retail business is still slightly higher, but of course, you know, we got to, we got to look at the consumer situation in South Africa and systemically what that means for other segments, you know, in the market. So, for example, small business and the flow through into corporates, and I think we are adjusting for, for that. I can also just say at this point that if you look at our retail portfolios, our early delinquency cycles are all behaving in line with our expectations, and we are seeing good performance so far in the first two and a half months of this year.
But of course, you would have seen the NPL build last year in the retail book, so the focus is specifically on managing those two, those two parts to ensure that we, we bring the loss rates down. If I go to the next question, high single digit NIR growth, in which reflect a large increase in run rate versus underlying level achieved in 2023, what are the main drivers of this? And then a second part to that question is: on the credit outlook, does your guidance incorporate interest rate cuts in 2024? And if interest rate cuts are flat, would you expect CLR to be higher? Chris, touch on NIR and CLR, and then I'll add to that.
Great. Thanks, Ross. I mean, firstly, on NIR growth, I just wanted to touch on the 2023 position. The first is that there were a number of base effects, which dampened our growth there. So even though we reported roughly 1%, the underlying is probably closer to 6%. Probably the three items that I would call out there, the first being the disposal of the investment cluster in 2022. We had a large gain on sale, which is non-headline earnings, which impacted the 2022 performance. And then we have the loss of that revenue stream, which is now booked through the associates line in 2023.
And then we also had a big insurance recovery in EB and a litigation recovery in CIB. We also spoke about the fee actions within Everyday Banking. That was another big impact on our 2023 performance. That item is now in the base. So if you take that context, so faster underlying growth, the step up into 2024 doesn't seem that big a bridge to cross. You know, and it's certainly a big focus for us as an organization, as we've called out, in our ROE positioning into the medium term.
On your question on the interest rate cut, factually, our expectation at the moment, from an Absa perspective, is that we have 75 basis points of rate cuts in 2024. That is the assumption that we've baked into the outlook. There's some benefit that will come through the CLR for that, but our expectation is that a bigger part of the benefit comes through into 2025. So, there's a small impact in these results, which will not manifest if the rate cut doesn't come through. We think the bigger impact is into 2025.
Yeah. And Chris, I think that's well covered. Maybe just some points from my side. On NII growth, I think what's very important is we flag the underlying NII growth in our commentary. And then secondly, the point that I made right at the end is if you look at our ROE glide path in terms of our medium-term targets, this is a key battleground for us that we that we wanna focus on as a franchise. And all the fixed elements, as we've indicated, and the concessions that we've made is behind us, and we therefore are quite confident that we will see that that NII contribution to total revenue improve over the, you know, over the medium term.
Chris, if I go to the next question: "Can you please unpack the change in CLR guidance, particularly in H1, as it seems worse than your previous high-level guidance? Is there anything that you can point to where Absa is being more conservative than peers or areas not already mentioned, that may have been disappointing?
Yeah. Great. Thanks. Thanks, Arrie. I think firstly on the CLR guidance, I think thus far we haven't guided for 2024. I presume your question would be in relation to 2023 and where we've ended there. Probably the main item that I would highlight is that, particularly in our SA consumer portfolio, that the losses there have been higher than what we expected, you know, initially when we brought out our guidance, you know, for the second half.
As Arrie has highlighted, we've seen some improvement, some stabilization come through on our early delinquencies, but it's the flow-through into the NPL buckets and the seasoning within the NPL buckets, which has caused our loss rate to be elevated there. In terms of whether there's anything that we think we're more conservative than our peers, it's certainly hard for us to make a comment around what our peers are doing in the space. We're certainly comfortable that we are well provided for the cycle that we're in.
Yeah. No, thanks, Chris. I do think we spent quite a bit of time in our, in our commentary just talking about our strategies and why we are where we are. It's very important that we just flag again that we're confident, confident that we made all the right management actions in this space, and we will continue to work with our customers in this environment to help them to deal with these, these vintages as they, you know, as they mature. If we go to the next question: "May you add some color on the decline of ARO Insurance revenue and the growth outlook for full year 2024 in this aspect?" Chris, this is actually a very small part of our business, but maybe you just want to make one or two comments on ARO Insurance.
Yeah, thanks. So, our ARO Insurance position reduced by 18%. It's a, it's a roughly ZAR 400 million revenue, revenue contribution. It's mainly as a result of higher reserving and higher claims that that position reduced.
Yeah. Thanks, Chris. I think what's important to say strategically is that, similar to what we've seen with the banc assurance model in South Africa, this is also equally a model across ARO RBB, and it's one of the key focus areas as part of our capital-light strategy going forward. So we're looking at some strategy enhancements in that space to ensure that we get the benefit from banc assurance across the region as well. If I go to the next question: "Can you possibly quantify your expectations for Everyday Banking NII growth in full year 2024, more than 5%? How is the investment cycle versus revenue growth evolving? Can Everyday Banking produce positive jaws in full year 2024?" I think we've touched quite a bit on the NII bridge, Chris, but let's just specifically touch on Everyday Banking.
I think it's a key part of our franchise.
Yeah. Thanks. Thanks, Arrie. So I think firstly, within the franchise, we have made investments. The investments have both been on fees, and we've spoken about the cuts that we implemented in 2023, but we've also spoken about the longer-term actions that we've taken. We think that we therefore have a base which is now solid of which to grow from. We've also made substantial investments in the digital platforms that we think are increasingly important in this business.
You will also see the improvement that has come through from a customer franchise perspective, and Arrie spoken about the customer experience outcomes that we're seeing there, as well as the increase in customer numbers. So, the combination of those factors should support stronger growth into the future. I would flag that, you know, over time, we're still seeing massive migrations in terms of how our customers are using our channels. You know, and there's still a move away from physical channels to digital channels. And that should have a bit of a headwind on the revenue base going forward.
But I'm certainly encouraged by some of the progress that we've made from a customer franchise perspective in 2023.
Yeah. Chris, thanks. Arrie, let me make a few additional points to the comments that that Chris has has made. Everyday Banking franchise as I've indicated earlier is a critical part of our of our agenda going forward and specifically our ROE glide path as I flagged a bit earlier. We are very confident that the revenue shape specifically the NIR shape is is moving in the right direction with all the actions that that we've taken which includes net customer growth and next net net customer activity levels you know improving. But equally this is a business that carries quite a large part of our cost base.
and as we've also indicated with both our short-term as well as long-term cost initiatives, we expect this business to continue to deliver a positive jaws, not just this year, but as part of its planning over the, you know, over the medium term. If I go to the next question: can you please clArriefy your ROE outlook for full year 2024? Below 15% on an IFRS basis, but still expected to increase from full year 2023 level, which is 14.4 on IFRS. Chris?
Yeah, thanks. I think firstly, our guidance is that our ROE expectation is for 15%-16% on an IFRS basis. So that is an increase from the 14.4% that we had in 2023 on an IFRS basis. Just to highlight within the 15%-16% on an IFRS basis, two items to call out very specifically. The first is the remaining ZAR 300 million on separation costs. The second being the full year impact of RBE transaction. You would have seen our commentary that in 2023, that impact was about ZAR 200 million, that we expect that impact to be roughly ZAR 600 million in 2024.
Yeah. Thanks, Chris. I think the next question is also focused on our ROE bridge. So to reach your ROE target of more than 17% on an IFRS basis in 2026, how much of this is just higher endowment and CLR moving into the midpoint of the through-the-cycle range? Does this get you there, or do you need to change something in RBBSA to increase its ROE? Chris, you start, I'll add to that.
Right. I think firstly, in terms of the key drivers, we've shown the four key drivers that we see as driving the improvement into the medium term. The benefit of endowment isn't a driver. You know, in fact, we expect endowment to pull back from here, you know, in the context of a lower rate cycle. You'll see that our... We have disclosed our sensitivity to net interest movements in our financials, and we are negatively geared to lower rates, particularly in our RBB franchise. So, no, we don't expect a benefit from endowment.
I would flag that, for the structural hedge, that on that component of our balance sheet, if you like, that we do expect some improvement to come through, which will help to offset some of the headwinds from lower rates. CLR is a key driver, and our expectation is that into the medium term, that moves inside the range. To give you a sense of sensitivity of our ROE to CLR, a 15 basis point reduction equates to roughly a 1% move on CLR. So you can see that our CLR moving inside the range is a key value driver.
On your question around if anything needs to change in RBB's ROE, both Everyday Banking and Relationship Banking are high ROE businesses. And we are certainly looking at those businesses to grow their earnings from here, which we think is possible given the lower rate cycle, the actions that we've taken around credit specifically, but then also the investments that we've made. Then, we've spoken about the investments in frontline staff. The frontline staff primArriely in RB, and we're looking to see the return on investment from those costs... and then in Everyday Banking, we've spoken about the kind of fee actions that we've done.
We've spoken about the big investments in digital, and we think those are all drivers to support-
Yeah
... our ROE going forward.
Chris, I think that's, thanks, that's well covered. I think, you know, RBB SA business is obviously a big part of our group franchise and will form a key part of, of, you know, all our expectations going forward. The closing comments on the ROE bridge that I just wanna make is that, you know, our focus on our returns profile and how that build over the short term for us is absolutely critical. We are confident with the four thematics that we've highlighted, which is capital light, which is the normalization of loss rates, our focus on productivity, and our continued diversification that we will hit that target in the medium term. Chris, there's just a couple of questions left. What is your outlook for collateral values and their potential impact on provisioning, particularly in a Product Solutions Cluster?
Let me also read the next question. Please explain the net monetary position loss of ZAR 550 million in Ghana. This relates to hyperinflationary accounting, and the ZAR 403 million hit on an after-tax earnings, and why do you expect further hyperinflation accounting in Ghana? Chris, let's start with Ghana, and then we can deal with the collateral question.
Great. We've applied hyperinflationary accounting on the basis that the cumulative rate of inflation over three years exceeds 100%, and therefore, there is a requirement to apply hyperinflationary accounting. The expectation is that we will continue to apply hyperinflationary accounting in 2024. The impact of hyperinflationary accounting is dependent on the rate of inflation as well as the balance sheet of the operation which you're applying hyperinflationary accounting to. And it's the combination of those things that results in the guidance that we provided, that it will increase somewhat from the 2023 position. The loss on monetary position is part and parcel of applying hyperinflationary accounting.
So what you're required to do there is basically re-index your balance sheet and remove a portion of the in-year performance as a result of elevated inflation rates. And that then gets reflected as a loss on monetary, monetary items. I think it is important to highlight that you can probably think about this adjustment as being a bit of a paper loss, in the sense that a corresponding adjustment is made to your opening retained earnings for the same item. You know, so therefore, on a shareholder value basis, the shareholder is not net worse off as a result of applying hyperinflationary accounting. It's really just the way that the in-year performance versus the opening position gets reflected.
How do you reconcile your target of productivity focus and the outlook statements mid to high single-digit growth and operating expenses, assuming inflation expectation is about 5.5%? So, Chris, just as we think about productivity, let me just comment on the question mark around collateral values, James, that you asked a little bit earlier, and the potential impact on provisioning. You know, we think about collateral values very carefully across our mortgage business. And what we've seen so far in our experience is that the values have held up very well, even though they've been on traditionally very, very high levels. You know, I think, at the same time, you've got to look at our acquisition strategies in this space and how...
What is our loan-to-value against, you know, at, at booking, booking and against front book as well as, as well as back book. And if we look at those loan-to-value ratios, they're still well within, within our, our appetite. So as we look at our loss expectations, we don't see a negative consequence of collateral values at this stage, and we don't expect that to change in the, you know, in the short term. Chris, you want to just reflect a little bit on productivity focus, the question mark around inflation rates and where we are?
Yeah. So, we expect inflation rates probably on a weighted basis to be beyond 5%. We see South Africa being about 5%, across the continent, probably slightly higher than that. You know, so you're probably looking at 67% on a weighted basis. You know, while we are looking very carefully at our discretionary costs, as I've highlighted, we see the benefit of productivity to be a longer-term opportunity, which may come in the short term with potential cost to achieve. What I would also highlight is that you've got a little bit of base effect still into 2024. You know, the hiring cycle, particularly on FTEs, continued during the year, so there's a little bit of annualization that comes through.
But certainly, with the within the context of what we're seeing as a revenue opportunity, a mid- to high single-digit outcome certainly seems balanced in that context. And we'll continue to look at the operating environment to see if there's anything additionally that we need to react to.
Yeah. I think our immediate focus is, Yes, positive, jaws, and I think we've got a very good track record when it comes to creating efficiencies across the organization post, post-2018. Although, as we've indicated earlier, we needed to make some investments in the last 18 months. Important for us that, as I stated earlier, that we want to sweat those, those investments now and get the returns that we want to, you know, on that, to ensure that we stay in the low 50s, and then our expectation is that we want to see an improvement on that, on that ratio into the, into the medium term. And again, you know, high levels of confidence in our, in our management plans to achieve that, that expectation.
Chris, the question had to come around our our capital position and where the share has been trading below book value. Would you consider share buybacks in capital allocation? Why don't you respond, I'll make one or two strategic comments.
Great. Thanks, Arrie. Yeah, so our capital remains at the top end of the range. We think it's important for us to have a strong capital position, given the growth ambition that we continue to drive. You know, certainly as we look at our capital position, then we balance those growth opportunities and the profitable growth opportunities that we see across the markets that we operate in against distributing excess capital to our shareholders, and we'll continue to do that. You'll see that we've adjusted that slightly in the payout that we've given for the full year, which is up to 55%.
You know, so we've increased our dividend by 5%, which is slightly higher than the baseline earnings position. But yes, this is a position that we'll continue to evaluate.
Thanks, Chris. I think, as we said throughout our presentation, that our posture is still, you know, finding the growth opportunities that, that we see across, across our markets, and our capital position is set up in a way to, to support that. But of course, you know, as a management team, we are not incentivized to sit on capital, so should that not materialize, we will certainly look at our, you know, at our capital plans and decide what is the best, the best way to, to deal with that. And then the final question, Chris, on other African regions, in which markets do you expect the fastest growth, and what drivers will support that?
Also, given the contribution in earnings in full year 2023 of about 30%, is there a long-term target in terms of expected earnings contribution from the rest of Africa Regions? Let me take that, Chris. So I think rather than in this call, specifically focusing on individual markets, I think what's very important for us is that we see growth outside South Africa at a higher level than in South Africa. We have got our businesses set up across all these markets to exploit that growth with the franchises that we've set up, and therefore, we do expect over the medium term for our other regions business to grow faster than the South African business.
Of course, as the South African business normalizes, you know, that growth rate will, will accelerate, but as you've seen from our, from our ROE slide that we put in the deck, we expect the ARO contribution to continue to increase relatively to group performance over the medium term. So whilst it's currently at, at 3%, we still expect that ratio to continue to increase over the short, medium, in fact, as well as the, as well as the long term. So that's very clear in our strategy. Chris, I think we've covered all the questions, so just from my side, thank you for, for, for your part in this presentation this morning. Much, much appreciated. And then if I can also just thank everybody that has joined us for, for this call, and also thank you for your, for your questions.