Absa Group’s push to reclaim market share lost while under the control of Barclays is beginning to pay off at the South African lender’s main retail-banking business.
First-half net income climbed 5.4% to R7.64 billion ($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 reorganisation 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 retail bank 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.
Signs of life at its retail business are emerging as South African banks focus on tightly managing their costs and find 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.
Anaemic growth in South Africa is likely to continue with Absa predicting an expansion in gross domestic product of 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.
Adjusted earnings before one-time items at its domestic retail and business bank rose 4% to R4.85 billion, while profit at its South African corporate and investment bank declined 10% to R1.55 billion as revenue fell and costs rose. Absa’s African operations lifted profit 8% to R1.73 billion, boosted by a weaker rand.
Shares in Absa dropped 0.6% by 9:13 am in Johannesburg on Tuesday to extend losses this year to 8.8%. That compares with an 11% decline in the six-member FTSE/JSE Africa Banks Index in 2019.
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 analysts wrote in a note. Overall, the earnings report represents “a rather balanced performance.”
Africa’s third-largest lender has been without a permanent chief executive officer since Maria Ramos retired in February. A replacement has been found and the new executive will start in January, the bank said without identifying the person, Absa said in a statement on Monday. Bloomberg reported in February that former central bank deputy governor Daniel Mminele is a contender for the post.
© 2019 Bloomberg L.P.