Barclays divorce helps Absa win back lost market share
Absa is beginning to claw back market share lost to its rivals during the Barclays era.
The banking group, which was SA’s largest home-loan lender a decade ago, lost its dominant position through more selective credit extensions as well as the constraints imposed on it by its former parent company, Barclays plc.
But investors appeared to be more concerned with the pedestrian earnings growth, at least in the short term, with the share price falling more than 4% at one stage on Monday, before closing nearly 3% lower at R166.16. Its share price is down 8.7% so far in 2018, more than three times the decline in the JSE’s banking index.
Absa CEO Maria Ramos showed that the company, recently freed from the oversight of Barclays, has begun making inroads into the market share lost to its major competitors. This included growth in new home loans of 14% against market growth of 4% in the six months to end-June, and 19% growth in vehicle and asset finance when the rest of the industry contracted over the period.
Impressive personal loan growth of 29% versus 6% recorded across the industry was due in part to enhancements of the group’s acquisition strategy. The 1% increase in Absa’s home-loan book reversed a four-year contraction, which contributed to its market share in that segment falling to 26%, trailing behind Standard Bank, which has been the market leader over the past seven years with 37%.
Revenue, headline earnings and the dividend per share all advanced 3% over the period, but this was still lower than the increase in operating expenses, which rose 8%.
Aggressive credit extension
When asked if the growth was due to more aggressive credit extension, Ramos and group finance director Jason Quinn said that there were numerous reasons for the momentum. "One of the factors has been the culture of ownership and entrepreneurial ethos we have wanted to instil as part of our new strategy and identity, so we are seeing much higher levels of energy and engagement from our staff," said Ramos.
Quinn said the group had targeted specific sectors for growth. "These are deliberate strategies we identified last year. Specifically, in home loans we knew were underweight in some segments and we decided to target growth there and the loans are performing well."
Absa also struck a deal to be the exclusive finance provider at Ford dealerships a few years ago and has benefited as the manufacturer strengthened its franchise in the local market. Absa also made progress in servicing the second-hand car market.
Some of the gains can be attributed directly to the separation agreement with Barclays plc announced in 2017, which has now led to formal "regulatory deconsolidation" being achieved on June 30 2018.
This means Barclays’s global regulators have ceased exercising oversight of Absa.
"So it’s not just about risk, it’s also about process and efficiency," Quinn said. "Some of our systems and processes were not invested in, and that is the risk with cost-cutting, you can cut too much and let inefficiencies creep in."
With the benefit of the R12.6bn it received as part of the separation, the group has begun to re-invest in some of its systems.
The results struggled to convince the market that Absa was beginning to turn around its fortunes. "That is the big question," said 36ONE analyst Louis Kruger, who thinks it is too early to tell.
"On the retail side they look like they are pushing hard, but it’s early days and we would want to see if it is profitable growth they are delivering.
"For the last nine years they have lost market share in some of the main categories and this has resulted in the discount Absa trades at relative to its competitors," Kruger said.