South Africa: Absa Bank seeks new direction after Barclays exit

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After the withdrawal of Barclays, South Africa’s Absa Bank is struggling to draw up a business plan in a strained economic and competitive environment.

Freed from the control of its long-standing shareholder, Barclays, and anticipating the imminent arrival of its new CEO, Absa Bank has, in theory, arrived at the perfect time to come up with a new strategy.

Nevertheless, the South African bank is still pursuing the same strategy it announced in early 2018. Meanwhile the country’s banking sector continues to undergo transformation, as new online banks disrupt the scene, bank branches close down and jobs are slashed, all prompted by the economic downturn.

Widely considered South Africa’s least adaptable major bank and the most unappealing to investors, Absa Bank has at times struggled to keep up with market fluctuations. This year, it ranked 5th in The Africa Report’s Top 200 Banks, behind its main competitors, Standard Bank and FirstRand.

• Absa’s results for the six months ended June 2019, which report a mere 3% growth in earnings and dividends, tend to support this sentiment. However, the bank explained that Barclays’ exit has instead served as a catalyst for its “reboot”, allowing the bank to finally “pursue a growth strategy consistent with that of an Africa-based financial services provider”.

The strategy Absa presented in March 2018 placed its South African retail bank, described as “essential”, at the centre of its growth project. Absa has streamlined its business model and organisation by integrating its wealth management, insurance, retail and trust businesses “in order to create a single outlet that brings together all banking and non-banking services”.

• The latest results indicate that this decision is paying off. Real-estate loans were up 16% in the first half of 2019, compared to 7% for the market as a whole, while retail deposits rose 12%, compared to 9% for the market overall.

Breaking down barriers

Despite a difficult operating environment, Absa stressed that its revenue has become more dynamic and reported growth of 6%, although the backdrop is negative.

It is difficult to regain market share in an economy whose growth is limited to 0.8% and in an increasingly competitive banking sector.

Absa claims the contrary, saying it can “reorganise [its] businesses to reduce bureaucracy and break down barriers” in the post-Barclays era. “We have reduced management layers to bring leaders closer to front-line employees and their clients. We analyse data to better understand them and offer them, among other things, loans that are the most adapted to their needs.”

“I don’t think the relationship with Barclays has benefited Absa”, said Waldo du Plessis, an analyst at Nitrogen Fund Managers.

In his opinion, when South African financial institutions work together with multinationals, such as Investec with Goldman Sachs and Rand Merchant Bank with Morgan Stanley, “it’s sometimes a one-way street”.

The South African company often merely serves the purpose of implementing the multinational’s Africa policy, with less obvious mutual benefits, he said.

Based on this perspective, breaking away from Barclays is actually a good thing. “But the bank also had to deal with the loss of its CEO, Maria Ramos”, says du Plessis. “And the economy is on its knees.”

Mystery CEO unmasked

In mid-November Absa sources told media that Daniel Mminele was to be the new CEO. Absa’s first black CEO, he has worked for African Merchant Bank and Commerzbank, but he spent the past 20 years at the central bank, where he was deputy governor, which is causing some observers to doubt his ability to manage a private bank in a competitive environment.

Absa has kept shareholders in suspense. When announcing its provisional results on 13 August, it confirmed that it had chosen a new CEO, but stated that the regulations in force prevented it from disclosing the person’s name.

Opportunities abroad

According to Absa, growth opportunities are still within reach, but they may have to be seized outside South Africa, as growth is more pronounced in the rest of sub-Saharan Africa.

• Absa’s businesses are spread over 12 countries, with majority interests in banks in Botswana, Ghana, Kenya, Mauritius, Mozambique, the Seychelles, South Africa, Tanzania, Uganda and Zambia.
• The bank also has representative offices in Namibia and Nigeria, as well as insurance operations in Botswana, Kenya, Mozambique, South Africa, Tanzania and Zambia. Its interim results excluding South Africa were up 8% last year, meaning this particular share of Absa’s results rose from 13% in 2013 to 21% in 2018.

Absa was happy to report that the success of its Timiza mobile banking app in Kenya is “an example of how we are seizing opportunities” abroad.

Launched in March 2018, Timiza has won over more than 3.4 million users in a year.

Absa asserts that its strategy has been devised “taking into account the fact that competition will only become more fierce” and stands out from its competitors by being “well diversified in terms of products, business operations and geographic coverage” and possessing “in-depth market expertise”.

Analyst Waldo du Plessis is more sceptical: “Absa has stated that it has an ambitious growth strategy, driven by its operations abroad, but it will have to raise funds in dollars on the debt market to make it happen”. He expresses doubt about the effectiveness of the bank’s positioning.

Even with the help of Barclays’ departure, “where can Absa go in a gloomy economic environment in which it has no advantage over any of its main competitors?” he asks.

Source: The African Report

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