Absa plans to claw back market share in South African home loans by taking on more risk and targeting first-time buyers, as CEO Maria Ramos embarks on a new era outside the clutches of Barclays Bank.
South Africa’s third-largest lender once had more mortgages on its books than any of its local rivals, but the Johannesburg-based company fell behind after Barclays acquired control in 2005.
Now that the UK bank has sold down its stake, Absa is plotting how to play catch up in a country with sluggish economic growth and an unemployment rate of more than 27%.
The firm has “the confidence to boost our lending book in a tough macro environment”, Retail and Business Banking CEO Arrie Rautenbach said in an interview at Bloomberg’s Johannesburg office.
“Absa is sitting on a balance sheet of over a trillion rand ($72 billion) – we are definitely able to take smart, additional risk on that.”
Rautenbach’s division generates more than half of Absa’s total revenue, and is at the forefront of a turnaround drawn up by Ramos, who promoted the 53-year-old while splitting the lender into four divisions early last year.
She expects the bank to increase revenue at a faster pace than rivals from 2019 to 2021.
Young buyers
To achieve this, Rautenbach plans to boost lending across the unit, including vehicle finance and personal loans.
He also intends to grow Absa’s share of the new mortgage market to 28% from 20% in the next five years, partly through expanding in the affordable housing market and lending to younger first-time buyers, who typically don’t have strong credit profiles.
“When we talk about young professionals we are comfortable to lend at, let’s call it 100%, because we have taken a different view on the risk assessment,” Rautenbach said.
“We back the jockey, we back the property, we back a number of different things to allow people to come into this market earlier,” he said.
During the Barclays years, Absa had to cater for its global parent’s priorities, which contributed to slower growth in its South African market.
Now it’s free to stage a comeback, but must contend with an increasingly competitive banking sector with established lenders including First National Bank and Nedbank Group introducing new products. Furthermore, at least two new banks are set to launch this year.
Absa increased new home and auto loans faster than some of its rivals in the first half of 2018, with mortgage figures up 16% in a flat market.
But third-quarter new mortgage data released last month by the South African Reserve Bank showed a deterioration in the value of new loans granted from the previous year. That suggests the market will have a poor start in 2019, John Loos, a property sector strategist at FNB Commercial Property Finance, said in a note.
“We have got to make sure we can lend and then the rest – such as growth in transactional banking will follow on the back of that,” said Rautenbach. “The mortgage business is an anchor product.”
Source: BusinessTech
