EDITORIAL: Rudderless Absa afloat in fiercely competitive market
SA's third-largest bank should have prepared for Maria Ramos’s departure as banks engage in a fee-cutting war
A year in a fast-changing, increasingly competitive banking industry can have a dramatic impact on the fortunes of SA banks. But for Absa, SA’s third-largest bank by market value, 2019 could turn out to be the year of counting losses.
Part of the reason is down to the lender having to ride out 2019 with the corner office occupied by an interim boss, as it is yet to fill the leadership void left by Maria Ramos, who retired earlier this year after 10 years at the helm.
René van Wyk, former banks regulator at the Reserve Bank, has been running the show temporarily since March, suggesting that the banking industry veteran has limited room to push through long-term strategic changes to grow and, crucially, to fend off competition from the old rivals and digital newcomers.
For example, Absa is the only one of the big four banks yet to join a banking-fees price war that has seen the likes of Nedbank, FirstRand and Standard Bank promise consumers everything from zero-fee bank accounts to actually paying the man on the street to bank with them.
The board is looking for an outsider to execute a strategy that he or she has not been part of conceptualising.
Absa can ill-afford to be rudderless in such a highly competitive scene.
The company’s board, led by Wendy Lucas-Bull, cannot escape blame given that one of its main tasks is to ensure a seamless succession of key executives. The fact that Absa did not have a new CEO in the pipeline and had to appoint an interim CEO exposed the cracks in the organisation’s succession planning. The board wilfully took its eye off that ball to ensure that a divorce from British parent Barclays was not detrimental to the group.
It’s laudable that Ramos was instrumental in getting Barclays to fork out the equivalent of R15bn as a divorce settlement. But compare that with R17bn, or a roughly 5% drop, in shareholder equity wiped off between now and her retirement announcement at the end of January.
That stock market performance also lags far behind the broader banking index, which has notched up around 11% over the same period, and reflects Absa's own operational underperformance in recent years.
With a pretax profit margin – or how much the company earns after paying operational costs – of 27%, Absa has the lowest operational profitability among the big four banks, and that leaves it with little ammunition to start slashing prices and enticing consumers with zero fees.
True, Absa has drawn up an ambitious growth strategy to win back market share at home and substantially grow its business elsewhere on the continent. But it is odd that Ramos, with one foot at the door, led the team that mapped out that growth blueprint.
It would have been easier to follow that logic had the company signalled that it is recruiting an insider, someone who would have been part of the strategic thinking. That is not the case. The board is looking for an outsider to execute the strategy that he or she had not been part of conceptualising.
Lucas-Bull blames the lock-in terms and cooling-off period imposed by the Reserve Bank to ensure that executives do not hop from one bank to another for the 2020 start of the new CEO. Surely, if there was proper succession planning, this regulatory hurdle would have been factored in when Ramos announced her intention to retire back in 2016?
By the time the new CEO starts, Absa might look around the fast-changing industry and say: a lot can happen in a year.