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On Wednesday, Absa posted what it called its best performance "in many years", despite the bank reporting only a 1% increase in headline earnings.
Its peers, including Standard Bank and Nedbank, have also had a hard time growing earnings, due to the stagnant South African economy which has seen some record lower transactional volumes growth and sharp rise in bad debt.
But it’s in the other numbers that the bank, which is finalising its breakup with its former parent company, Barclays, showed green shoots. Absa said it now has 9.7 million customers, growth that had almost become distant memory to the bank as customer losses in its retail and business banking unit persisted over the past few years.
Absa's financial director, Jason Quinn, says customer departures have now been arrested, and the group’s grip on home loans market share, an area in which it was once an industry leader, has now stabilised.
"It’s for the first time in years that retail and business banking customers stabilised at 9.7 million, 3.2 million of those are primary customers, which have also been stabilised," said Quinn.
But despite the client gains, the retail and business banking South Africa (RBB SA) business recorded a 2% decline in headline earnings to R9.5 billion. Absa Corporate and Investment Banking SA also recorded a 6% decline in headline earnings. But Absa Reional Operations, those outside South Africa, delivered a 16% growth.
Reclaiming its spot in mortgage lending
According to statistics from Genesis Financial News & Data, Absa held the biggest market share of home loans in South Africa in the 2000s. It was over 31% in 2008. But in the 2010s, the bank lost a lot of market share on this front, hovering around 20%.
In 2019, the bank reclaimed this lost market share, said Quinn. Its home loans extension increased 24% even as the bank’s pricing went up 8 basis points. Personal loans advances followed closely, growing at 23%, and Absa’s pricing on that front was up 74 basis points. Vehicle and asset finance and credit cards were the only products in which the bank didn’t record a profit margin growth.
What this means is that Absa has been growing its lending book without sacrificing its profit or competing on being the cheapest. It’s a development that new CEO, Daniel Mminele, thinks this indicates that the bank's newish Africanacity strategy is working.
"We are managing to claw back, and those strategies that we adopted are yielding benefits. We are now growing in line with the market after being behind for many years," said Mminele, who took over as CEO in January 15.
When it was still owned by Barclays, Absa didn't set its own risk appetite - this was determined in London. After the two split, Absa said the appetite set by Barclays limited it from growing some credit portfolios, like personal loans. But Mminele and Quinn admitted to lagging behind peers in other areas as well in the past, including attracting customer deposits which the group by 12% in 2019.
However, this "clawback" in market share came at a cost. The bank’s credit impairments grew by 24%.
Karl Gevers, head of research at Benguela Global Fund Managers, said Absa’s market share gains, which were across the board, "probably" supported the argument that the relaxed risk appetite since the Barclays split has helped the bank catch up with its peers.
"But it did come at increased credit losses, off an already elevated 2018 base. It is probably not the ideal environment to try to grow market share," said Gevers.
He said while RBB SA’s decline in headline earnings was disappointing, it was encouraging to see that the division is growing its customer base again.
"It could be related to the marketing campaign over the last couple of years, or more attractive pricing. Customer experience seems to be improving in SA," said Gevers.
