Absa’s Retail-Banking Push Starts Paying Off as Profit Rises

JOHANNESBURG (Capital Markets in Africa) – Absa Group Ltd.’s push to reclaim market share lost while under the control of Barclays Plc is beginning to pay off at the South African lender’s main retail-banking business.

First-half net income climbed 5.4% to 7.64 billion rand ($500 million) as Absa provided more personal loans and credit cards, while boosting the revenue it generates from fees and commissions, the Johannesburg-based company said in a statement Tuesday. The improvement at its retail and business banking unit and its operations in 12 other African nations helped offset a drop in profit at its domestic corporate and investment bank.

“We’ve made significant progress with Absa’s reorganization following the implementation of our new strategy in March 2018, and we are beginning to see the benefits,” Absa’s interim Chief Executive Officer René van Wyk said in the statement. “There is still, however, significant work to be done.”

The lender’s retail banking operations account for more than 60% of its earnings and have undergone a revamp to drive efficiency and boost sales. Changes at the consumer lender are part of a larger strategic and operational overhaul since London-based Barclays last year sold down its controlling stake in the company. The move has given Absa room to lend more and focus on building out its African business.

Tough Economy
South African banks are tightly managing costs and seeking new avenues for growth as earnings in their home market come under pressure. South Africa’s economy has shrunk for three of the five past quarters and the nation is battling an unemployment rate of 29%, the highest in more than a decade.

Absa predicts South Africa’s gross domestic product will expand 0.5% this year. This will mean that return on equity, a measure of profit, might be slightly lower for the full year, even with the likelihood that revenue growth could outpace cost growth, Absa said.

The results show “some strong signs of a turnaround” in terms of lending and transaction-fee income, but also contain some disappointments with significant margin compression and high staff and information technology expenses, Citigroup Inc. analysts wrote in a note. Overall, the earnings report represents “a rather balanced performance.”

But Absa’s high staff costs won’t be repeated and were undertaken to drive efficiency, Finance Director Jason Quinn said in an interview. The lender reduced staff by 1,500 across its operations in the first half compared to a year earlier, with 700 staff leaving as a result of the bank restructuring, he said.

Source: Bloombergb Business News