ABSA Group, South Africa's third-largest banking group, on Friday reported an expected 6% drop in first-half earnings, hit by a spike in bad debts in its home-loans business.

The South African lender, majority held by Britain's Barclays, said headline earnings per share fell to 602,3c in the six months to end-June, down from 638,5c a year earlier.

Absa, the first of South Africa's big banks to report earnings this season, warned last month that profit would likely fall as much as 10% due to sour mortgages.

The warning sent its shares into a tailspin and ignited fear that its recent recovery was losing steam. Absa has in the past few years grown earnings by cutting back bad debts rather than by expanding earnings from lending.

Other large lenders such as Standard Bank, FirstRand and Nedbank are unlikely to post profit declines as they have set aside adequate provisions, analysts say.

Absa said net interest income, a measure of earnings from lending, totalled R11,9bn, compared with R11,6bn last year.

It would likely see a R190m decline in revenue as a result of the Reserve Bank's interest rate cut, David Hodnett, chief financial officer said on Friday.

The Reserve Bank cut its benchmark rate by 50 basis points this month.

"If you look at what just happened with the interest rate cut . although we hedge, that will still cost us around R190m in revenue," Mr Hodnett said.

Credit impairment charges, or bad debts costs, totalled R4bn, an increase of 40% from a year earlier.

Lenders in Africa's largest economy have been ramping up unsecured lending to counter slow growth in home and vehicle financing.

Absa has been losing market share to competitors such as FirstRand, and investors are also worried about the exit of several top-ranking executives, including deputy CEO Louis von Zeuner.

Absa is the worst-performing share among South Africa's big banks this year. Its shares are down nearly 4% while bigger rival FirstRand is up 29%. Industry leader Standard Bank has gained 13%, while Nedbank has added 19%.

Reuters