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Absa rebounds, but is still losing customers

Transactional franchise struggling, with R1bn in income lost.
The group is likely to fall short of its 2021 market share targets for retail deposits and retail banking advances despite respectable increases in both. Image: Moneyweb

Absa Group reported a strong earnings rebound across its retail and business banking (RBB) franchises, when compared to the lockdown-impacted first half of 2020, but the group is still not adding customers.

Customer numbers are 2% lower than a year ago, but the group says these have “remained stable at the December 2020 level of 9.5 million”. It says “the attrition witnessed in the second half of 2020, specifically in the entry level banking segment, was stemmed”.

Worryingly, the number of “primary customers” is down 3% from a year ago at 2.8 million. Absa says this is due to “lockdown restrictions in relation to the pandemic” which “continue to subdue transactional activity and reduce customer income”.

Headline earnings for its RBB unit are up over 600% from last year’s first half.

In fact, the bank’s retail unit made almost as much profit in the first six months as it did for the whole of last year (R4.052 billion versus R4.466 billion).

It says excluding provisions, profit contracted by 14% when compared to the first half of 2020. This “was driven by the impact of excess mortality claims, customer-centric fee decisions and increased costs related to incentives and restructuring costs”.

A more realistic comparison would be to the first half of 2019. Compared to that, earnings are 16% lower. The bank only provides selective comparisons to 2019 in its results.

Headline earnings H1 2019 H1 2021
Home Loans R750 million R1.368 billion
Vehicle and Asset Finance R122 million R240 million
Everyday Banking R1.998 billion R1.607 billion
Relationship Banking R1.684 billion R1.462 billion
Insurance R584 million (R297 million)
Total RBB SA (including other) R4.847 billion R4.052 billion

Read: Absa is said in talks to sell asset management unit to Sanlam

Total income in its transactional banking segment (Everyday Banking) is down by R999 million from 2019, which resulted in a R391 million decline in profits.

Push on loans

Earnings growth in RBB is being driven by its deliberate secured lending push. Absa says the number of home loans registered “increased by 110% against 2020 and 47% against 2019” while the number of vehicle and asset finance loans granted “increased by 33% relative to 2019, in a market that shrunk by 10%”. Net advances for home loans totalled R257 billion, an 8% increase on the comparable 2020 period, with vehicle and asset finance totalling R94 billion, a 14% increase.

In 2019, Absa stated that its 2021 market share targets for retail deposits and retail banking advances were 22% and 23% respectively. As at end-June, these are at 21.8% and 22%, respectively. It is likely to fall short of those targets, despite respectable increases in both from 2019 levels.

Corporates are noticeably parking cash, with a 35% year-on-year increase in customer deposits (to R329 billion) in its South African corporate and investment bank. (In June 2019, this was R208 billion.) Absa says on the retail side of the bank, “growth in investment deposits was assisted by customer-led migrations from the Absa Money Market Fund post the announcement of its closure in April 2021”.

Its efforts at overhauling its RBB unit are yielding results. Absa says “process and product digitisation over the past two years have enabled the business to continue to drive efficiencies that have reduced the cost-to-income ratio to 56.8% relative to 2018’s 58.4%”. This is a meaningful decrease.

For the group, expenses are up 5%, mostly driven by a 6% increase in staff costs and 18% increase in technology expenses. Its cost-to-income ratio is 54.9%.

Unsurprisingly, Absa says the credit impairment charge was “significantly lower” at R4.7 billion (versus R14.7 billion in last year’s first half). The credit loss ratio for the group improved to 0.88% (with RBB’s at 1.33%). It says that “after last year’s substantial build in coverage, credit impairments are expected to decrease substantially, resulting in a credit loss ratio around the mid-point of our through-the-cycle range of 75 to 100 bps [basis points]”.

Absa says “whilst the cost of the looting, property destruction and trading interruption have been extensive and are being quantified, the longer term economic impact remains unknown”. It says 22 branches and 233 ATMs were “completely vandalised and a further 2 500 point-of-sale devices” were “stolen or damaged”.

The group reported (diluted normalised) headline earnings per share of 1 018.2 cents, a 487% increase on last year, but an anaemic 4% increase on H1 2019. The bank declared a 310 cents dividend per share. It “expects a dividend pay-out ratio of 30% for 2021, increasing to 50% over the medium term”.

Absa share price

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They probably have the worst customer relations in the entire fintech / banking industry.

ABSA’s KZN commercial property department has the worst customer service in the entire banking sector, completely clueless and incompetent.

If Absa is losing customers the rebound is not going to last very long.
They are slowly losing it.

Check those figures, there may be ghost customers like me who get statements every month but yet have never banked with them ??

No, the association has a definition of a client that precludes this. Obviously.

Comment removed

You are not living in South Africa, are you?

I remember reading an article on banks a few years back. In it is showed that ABSA had by far more of the elderly as clients and very little youth as clients. Writing was on the wall for ABSA then already. With the elderly passing away and a lot of them sooner now due to covid and the bank unable to attract younger clients it stands to reason that Abla will bleed clients.

Well we have been seeing the top management leave for quite a while now. Even British airways pulled out??Something is happening

I banked with Absa years ago and though I knew they were more expensive than some other banks I stayed with them until then out of convenience. This was until I had to close an investment account. Online banking did not allow me to do this and forced me to go into the branch. There I was ferried from office to office, only for them to after hours of pointless questions and conversations tell me that I cannot close this account. After weeks of struggling with the official Absa complaints centre I finally got to close the account, I then took that opportunity to close all my accounts with the bank and moved to another bank where I have been able to bank with them for almost a decade now and open various accounts and do various types of transactions without ever having to go to a branch even once.

I am a simple person, I am willing to pay some form of premium on fees as long as banking is convenient and easy for me. If you charge a premium when compared to other banks and yet make banking so difficult then its no wonder you are losing clients.

Tip 1 to ABSA: Try answering the phone numbers listed on the website so customers can speak to someone.
Tip 2 to ABSA: Recruit bankers that understand banking to answer the above calls in Tip 1
Tip 3 to Absa: All customers cannot call 086xxx numbers. There are still business people that travel
Tip 4 to ABSA: Maybe recruit people with a little patience and listening ability – commonly known as EQ – to speak to customers.

Do not put the phone down or select any of the options the computer lady is requesting you to select. Continue to hold until their computers transfer you to an agent.
Whoever designed their new call center answering system did a terrible job. Maybe it was designed to drive away clients who want to speak to agents so that they can go to branches. Visiting a branch is an opportunity for them to sell you their products. Sir you need to increase your credit limit, sir I can see that you don’t have any insurance with us. How much are you paying for your cover?
Absa charges R1.2 for an SMS, really!!!

ABSA recently (in June) rebooted their stockbroking website with a new “Trade Like A Pro” system. After introduction, no one could trade for a period of a week as the system did not work properly. No one could get thru to their customer services call centre for days and days, and absolutely no email enquiries were responded to for over three weeks. Absolutely shocking service. I couldn’t even get ABSA to close my account!
I have commenced selling all shares and moving to other stock broker.
As for banking “service”, I moved to Capitec long ago and never looked back.

Agree – Your experience mimics mine !!!
Totally clueless !!

“Worryingly, the number of “primary customers” is down 3% from a year ago at 2.8 million. Absa says this is due to “lockdown restrictions in relation to the pandemic” which “continue to subdue transactional activity and reduce customer income”.”
.
I disagree. Poor service would be the main reason if “primary customers” are leaving. And poor service is what you get at ABSA.

I’ve been very happy with ABSA the past 21 years. However since opening a Tyme account I see myself leaving ABSA once my bond is payed in 5 years time.

End of comments.

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