Absa has resolved to once again become … Absa.
SA’s third-largest bank by market capitalisation, worth R169.8bn and until 2017 majority owned by Barclays plc, has opted to use its South African brand name in the rest of Africa as it plans to double its market share of banking revenue on the continent to 12%, unshackled as it now is from its UK parent.
CEO Maria Ramos gave no definitive timelines at the full-year results presentation on Thursday, although she described Absa’s growth plan as “a once-in-a-generation opportunity to reset the group”.
“We are an independent business now, we do not have a majority shareholder… [It’s] growth driven by a fundamental change in culture and by an investment in our core capabilities … it is a strategy that we have spent the whole year on, involved everybody in our organisation [in] and we’re very confident that we can get this done,” she said.
Ramos said the bank had consulted with more than 130,000 customers in arriving at the bank’s new-old name, but said it would not be “Absa as we know it”.
Happily, the bank, which will remain known as Barclays Africa until a shareholder annual general meeting on May 15, has plenty of capital as it sets out on its new path. Thanks to a payment from Barclays plc, which cut its stake to 14.9% last year, Absa Group as it plans to be known received a meaty R12.6bn to pursue its aims at home and further north. Of that, 46% will be spent in Africa and 54% on its local operations.
Barclays Africa has already spent 18% of its separation payment and will use the remainder to rebrand, separate its human resources and IT systems and grow, which may include acquisitions as well as asset sales.
Ramos said the bank might also obtain a banking licence in Nigeria, primarily in corporate banking. The future Absa Group was likely to partner with companies as it revved up its digital offerings.
“Partnerships could be in the technology space and with digital we can’t do all of this stuff on our own so we’re keeping a very open mind on that,” Ramos said.
The bank was also keen to build up its “highly profitable” payments business, which was growing at 8% a year.
It is not hard to see why Barclays Africa feels it needs a “reset”: full-year revenue to the end of December was all of 1% higher at R72.9bn, with net interest income and noninterest income rising 1%.
PSG Wealth portfolio manager Adrian Cloete said: “We had very low GDP growth … and obviously banks’ volumes are linked to GDP, so obviously loan growth is very low.”
But a 16% increase in headline earnings at its corporate and investment banking division and a 20% reduction in credit impairments helped lift full-year normalised headline earnings 4% to R15.56bn. The Rest of Africa earnings were 7% higher and Barclays Africa lifted the dividend 4% to 1,070c, marginally ahead of expectations.
The bank’s credit loss ratio has dropped to 0.87% and financial director Jason Quinn expects that to remain “stable”.
But return on equity dipped to 16.6% from 16.4% the year before and Absa’s “jaws ratio”, which is used by bankers as a measure to show the extent to which income is growing ahead of expenses, turned negative. Barclays Africa’s cost-to-income ratio pushed up to 56.8% from 55.2% previously. Cloete said that “if confidence returns to the country and businesses feel confident to spend capex, as soon as that comes back I think the demand for loans will increase, and the banks have excess capital so they can grow into their loans without having to generate any extra capital.”
He said if there was an upswing in loan growth, earnings growth could move back up to double digits.
Barclays Africa is clearly keen to regain ground in the markets in which it was formerly dominant, such as homeloans. According to Quinn, the bank has managed to win 20% of the new homeloans market since the second half of the year, although for the full-year period, Barclays Africa had shown no growth in homeloans at all.
Customer loans in the retail bank were 2% higher, against an 8% rise in loans at the corporate and investment banking unit.
Ramos admitted that “the need to grow has not always had the focus it deserves”, and Barclays Africa has certainly lagged its competitors over the past five years.
Excluding dividends, Barclays Africa’s shares have rallied a mere 23% since March 2013, making it the weakest performer among the big five. Nedbank stock rose 49% in value over the same period, Standard Bank gained 85%, FirstRand rallied 135% and Capitec crushed them all, surging 348%, notwithstanding its recent sell-off.