Long journey ahead to regain market share, says Absa
Absa’s new CEO, who is yet to be announced, will have their work cut out for them as the country’s third-largest bank warned its journey to regain market share lost over the years will not be easy or short.
After Absa became the latest of the big four to report a single-digit increase in interim earnings due to subdued economic activity, which continues to affect banks’ ability to lend and grow deposits, it revised its earnings outlook for 2019 downwards and expects its return on equity to be lower.
“We are in a difficult economic environment in SA and in some of our other African operations, so we are not naïve about the size of ambition we have set for ourselves,” said acting CEO Rene van Wyk.
At 3%, the growth in Absa’s normalised headline earnings — a measure of performance that strips out the effect of the interest the group is earning on the Barclays divorce settlement — sat at the lower end of the single-digit spectrum. This compares with Standard Bank’s growth of 6%, although it was slightly better than Nedbank’s 2.6%.
But while Absa downgraded its full-year earnings expectations for 2019, banking analyst at Avior Capital Markets Harry Botha said as it finalises its strategy overhaul and the restructuring of its biggest division, Retail and Business Banking SA (RBB SA), the bank is likely to do better in successive years.
“In aggregate, the results were disappointing in terms of the outlook for 2019 financial year earnings but the outlook for improved profit from RBB SA and a rebound in Corporate and Investment Banking SA could offset the problems in 2020,” said Botha.
Van Wyk said Absa is using the difficult economic environment to find selective growth opportunities and take market share where it feels it is appropriate to do so. “If you look at a difficult economic environment and you want to show growth, you put in strategies in place to do that,” said Van Wyk.
Absa embarked on a strategy overhaul in 2018, adopting a new brand identity after its separation from Barclays. It has ticked a few of its short-term targets, such as growing revenue in line with competitors in the six months to June and increasing its market share in lending. It grew revenue by 6%, placing it slightly behind Standard Bank (7%) and Nedbank (6.3%). In 2018, the bank lagged behind the market.
Bank loans up
The bank increased gross loans by 12%, thanks to regaining market share in certain credit product lines such as home loans. The bank grew new home loan registrations by 16% and personal loans by 12%. It increased new-vehicle asset finance loans by 2% at a time when new-vehicle sales continue to slide.
Absa’s financial director, Jason Quinn, said the growth in unsecured loans, both personal loans and credit cards, was driven by Absa’s existing clients. The credit profile of the bank’s lending customers has not changed. He said the bank’s profit margin on home loans was actually up 0.5 basis points, indicating that it is not chasing volumes at the expense of quality. The bank is trying to claim back its crown as the biggest issuer of mortgage loans in SA.
“I’m pleased to report that for the half year we got [our share of new business] up to 22%. We think we’d like to get our fair share, which will be around 25%,” said Quinn.
In a market where new competitors such as TymeBank will soon enter the unsecured lending space, reclaiming its secured lending market share could be beneficial for Absa as its personal loans and credit card growth might come under pressure. But even in the face of competition, the bank is not writing off unsecured lending just yet.
“Our overall market share in personal loans actually remains fairly low,” said Quinn. “That’s an area we expect to continue to grow in. It’s within our client base. We’ve got many of these customers already. We are just preventing them from going to another bank to get the finance they need.”