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Absa set on regaining top retail bank title

Despite drop in customer numbers

Barclays Africa Group (JSE: BGA) wants South African unit Absa to regain the leading market position in retail and business banking in the country, which remains its ‘biggest business in its biggest market’, it said on Tuesday.

“There is no denying that our business has been through a tough period, with significant internal and external change. We have lagged our peers in some important segments, particularly retail and business banking in South Africa,” said Barclays Africa Group CEO Maria Ramos.

She was speaking to analysts in Johannesburg at the presentation of the group’s financial results for the year ended 31 December 2013.

Reporting financial results as a combined entity for the first time since the Absa Group’s acquisition of Barclays’ Africa businesses (and subsequent name change), the newly-formed entity delivered a 14% rise in headline earnings to R11.84bn for the reporting period.

This was largely due to improved credit impairments because of a significantly better performance in collections. Credit impairments declined 21% to R7bn, narrowing the credit loss ratio to 1.2% from 1.6% in the previous reporting period.

“We are starting to see the early indications of a turnaround and over the next three years we expect to regain our leading position in the retail and business banking market in this country. We have the right people and the right strategy,” Ramos emphasised.

However, she said that the bank’s 8% growth in revenue to R59.4bn was still “too low” and that growth in retail transactional business remained a challenge.

Excluding the loss of 850 000 social grant-related accounts, Barclays Africa lost 90 000 transacting customers. Overall, its banking customer base in South Africa fell 9% to 9.23 million.

Headline earnings for the South African retail bank (excluding home loans, vehicle and asset finance, card and personal loans) dropped 56% to R573m, mainly due to continued pressure on revenue and higher operating expenses. The increased uptake of value bundles in favour of ‘pay as you transact’ offerings placed pressure on non-interest income, which declined 3% to R6.94bn.

Chief financial officer David Hodnett said that changes in pricing and enhanced value bundles meant that Absa was no longer the most expensive bank. He said that the bank’s loyalty programme, Absa Rewards, had grown 49% to 1.4-million customers.

When adding home loans, vehicle and asset finance, card and personal loans to the results of the South African retail banking operations, a 41% growth to around R8bn is reported. Absa Home Loans recorded a profit of R876m, compared with a R992m loss for the previous reporting period. Hodnett said that the bank would continue to focus on writing good quality and low loan-to-value business, to ensure a continued decrease in non-performing mortgage loans.

“The tide is turning, but we have some way to go. We have a great deal more to do to gain a leadership position in the market, but I am confident that we can do just that,” Ramos stated. She noted that customer attrition had stabilised and customer numbers were increasing in the core middle and retail affluent markets, as a result of migrations and new customer acquisitions.

Headline earnings for Barclays Africa’s business banking operations in South Africa jumped 64% to R1.7bn, mainly due to the stabilisation of the equity portfolio following the valuation of writedowns in the previous reporting period and a reduction in credit impairments.

Retail and business banking (RBB) grew 35% to R1.35bn in the rest of Africa.

Branch network transformation

In addition to taking the lead in RBB, Barclays Africa will focus on expanding its corporate banking franchise across the continent, growing its wealth and investment management business and developing talent within the business. The group is investing R3bn towards these transformational initiatives over the next three years, R1.2bn of which is going towards transformation of the branch network in South Africa, including a digital banking strategy and self-service banking options.

By 2016, Barclays Africa aims to be in the top three banks by revenue in its five biggest markets, including South Africa, Kenya, Ghana, Botswana and Zambia. It wants to achieve a return on equity (ROE) of between 18% and 20% by this time (2013 ROE: 15.5%) and have its rest of Africa operations contribute 20% to 25% of total revenue.

Bonuses deferred

Commenting on a question around executive remuneration at a media roundtable discussion on Tuesday, Ramos said that bonuses were not capped but that Barclays Africa had the highest deferrals of any South African bank and was largely subjected to the limits imposed by the Bank of England’s Prudential Regulation Authority on Barclays Plc.

She explained that executives were paid 40% of the value of their bonuses in the first year, with the remaining 60% deferred over three years (annual payments of 20%), provided that certain targets were met.

Ramos said that “a select group of people at senior level” would receive role-based pay. 

BGA’s share price rose 2.77% on Tuesday to end the day at R12.75 per share.

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