By David Dolan and Tiisetso Motsoeneng JOHANNESBURG (Reuters) - Absa Group Ltd, the South African bank majority owned by Britain's Barclays, said it expects first-half profit to fall by as much as 5 percent, hit by slack demand for loans. The statement, which came after the market close on Thursday, could sour investor optimism about banks in Africa's biggest economy, which begin reporting earnings next week. Johannesburg's banking index has gained more than 12 percent so far this month, outpacing a 9 percent rise in the broader All-Share index on expectations lenders will benefit from the slowly recovering economy. "There's over-optimism in terms of the timing of the recovery," said one Johannesburg-based analyst who declined to be identified because he is not authorised to speak to the media. "I think the recovery's going to be somewhat more subdued and delayed." South Africa's economy exited its first recession in 17 years last year, but unemployment and debt levels remain high. Absa, South Africa's largest retail lender, and rivals Standard Bank, FirstRand and Nedbank have all said they expect a recovery this year after sharp profit falls in 2009. Absa said it expects headline earnings per share to decline by 3 to 5 percent in the six months to the end of June. Headline EPS strips out certain one-off items and is the main profit gauge in South Africa. Headline EPS totalled 564.4 cents in the same period a year earlier. Absa said revenue did not grow during the first-half, as customer demand for loans remained low. Weak equity markets at the end of June hit the bank's investment portfolio, it said. Absa said bad debts in its retail business were falling, in line with expectations. Absa is due to report its first-half earnings on August 5. Shares of the bank rose 0.8 percent to 138.85 rand in Johannesburg before the announcement, outpacing a 0.6 percent rise in the All-Share index.