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Why don’t all banks report like Nedbank and Capitec?

Absa refuses to disclose any meaningful customer metrics.

The disclosure by Nedbank of metrics in its retail banking division is, quite simply, industry leading. I was struck by this – again – while reading its interim results presentation and booklet yesterday.

One might argue that it has to share this amount of detail, given the multi-year “evolution” underway in the unit. The latest is part of its “target operating model” programme. By 2020, it aims to lower its efficiency ratio (cost-to-income) for retail and business banking (RBB) at equal to or below 58%, from 64% currently. Because of its relative size (and large fixed cost base), Nedbank has historically struggled with a stubbornly high efficiency ratio. Contrast this with Absa Group’s local RBB operations at 58.3 (from 56.6 a year ago), and one can see the disparity.

Nedbank needs to get the retail and business banking unit’s efficiency ratio to under 60 in order to achieve a groupwide target of ≤53% by 2020. It continues to achieve cost savings, and banked R237 million worth in the unit during the first half of 2018 (R177 million related to its target operating model efforts). Space reduction in the branch network continues apace – it discloses the cumulative square meterage saved – and it has reduced headcount by over 1 000 staff in the past 18 months, mostly through attrition. It even provides a breakdown of ‘new image’ versus ‘traditional’ branches as it continues the network modernisation.

But it’s in the client data where Nedbank really stands out from the rest. Apart from disclosing total retail clients, transactional ones and main-banked customers (which it always has), the bank has introduced additional metrics: active clients and consistently main-banked clients.

The former is any client who has been active in the past six months, while the latter is a main-banked customer for each of the past 12 months. Additionally, it has provided further details on what constitutes a main-banked customer. In other words, this would be how many transactions customers in different segments need to perform over a three-month period. This is an unprecedented level of disclosure.

Source: Nedbank interim results presentation 2018

We also know how many customers it has in each of its segments (middle vs professional vs entry-level and so on), as well as how many retail customers it has in each product line (transactional vs home loans vs card, etc.). For its lending product lines, it publishes the number of applications received as well as product-specific metrics, such as the average loan size in personal loans and loan-to-value of new business in home loans.

Capitec has also improved disclosure significantly, now distinguishing between credit clients, transact and saving clients, as well as primary bank customers. In April, Capitec introduced another metric: “quality” banking clients, which it defines as “those clients who have stable inflows into their account and stable product usage over a consecutive three-month period” (read: Capitec execs surely still smiling about this number…). In its lending business, Capitec provides superb disclosure, especially when compared to other lenders (Viceroy may disagree).  

Standard Bank also provides a fairly detailed breakdown of customers, with splits for credit card accounts, current accounts, targeted current accounts and so on. It provides some level of disclosure on trends within its lending products, such as home loans. Standard metrics for its distribution network as well as digital customer behaviour are disclosed.

FNB parent FirstRand publishes customer account figures once a year, in its integrated report, with selective trend disclosure for segments at the interim and full-year stage. Also, the bank discloses transaction volumes across its various channels, including digital.

Contrast this with Absa Group, which discloses so little about its retail banking business that it’s laughable. From its interim results booklet, we know that the “average number of products per customer increased marginally” thanks to a product penetration chart. We also know the annual loan production growth per segment (card/home loans/vehicle finance), which we’d have been able to ascertain from the segmental breakdown in its financials. 

And we know how many Absa Rewards customers it has (2.8 million, versus 2.6 million a year ago). Like all other banks, it publishes its distribution footprint (but, with no detail). That’s it.

Since last June, it has not published retail banking customers (and even then, it made very selective disclosure).

For years, it’s been trying to fix its retail and business banking unit in South Africa. Craig Bond, hired from Standard Bank about five years ago, couldn’t and was shifted to a token role (CEO of partnerships, joint ventures and strategic alliances), before stepping down last month.

The latest strategy is focused on “regaining market leadership by leveraging the scale of the business through focusing on consumer finance whilst deepening the relationship with customers to benefit the transactional franchise”. As I pointed out in April, this is no real change from an ambition articulated by Ramos in 2014, when she stated that the bank wanted to regain the leading market position in retail and business banking.

Read: Absa’s transactional banking business going nowhere slowly

Four years on and not much has changed.

Surely investors ought to demand better disclosure for a unit – transactional and deposits – that delivered R1 billion in headline earnings in the first half of this year? (Never mind that it’s down 9% year-on-year!).

Overall, Absa Group’s Retail Banking South Africa division generated R3 billion in headline earnings for the six months, nearly 40% of the group’s total. Based on disclosure, at least, Absa thinks this not material. Investors should take note.

* Hilton Tarrant works at YFM. He can still be contacted at

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“Contrast this with Absa Group, which discloses so little about its retail banking business that it’s laughable.”

Pretty much sums up Ramos and the bank of the ANC

Nedbank should concentrate on managing it’s appalling service levels before tackling costs otherwise its revenues will fall faster than it can cut costs. My experience has been poor and seems to be shared by other customers I’m sitting with in long queues for service. Many are voting with their feet – I think Nedbank’s customer growth numbers may hide a loss of quality customers being replaced by less profitable ones judging by anecdotal evidence.

So Nedbank see fit to continue to modernize their branches and one has to question why go to this expense if customers are not visiting the branches to do their transaction. It would be interesting if banks reported on how many customers used branches to conduct transaction versus customers who use the internet to conduct transactions

I would presume that ABSA’s non-disclosure of retail client numbers is due to fact that ABSA is still losing clients. I closed my ABSA account a month ago (after 15 years with ABSA) due to ever increasing and unexpected charges for minimal services. Now with Capitec. Too early to judge but my first monthly statement (much easier to extract on Capitec’s internet banking site) shows that service charges have gone down by over 70% compared with ABSA. And it was easy to open account at Capitec despite all the FICA requirements.

I must say SA companies and specifically the banks disclosure is light years ahead of what you get from European and US banks. Some of them do not even give you full financials in their interim reporting – only a trimmed down P&L not even balance sheet and SOE.

None of them provide the granularity of operating metrics on a divisional and somnetimes even product level that SA banks do.

I am not being sycophantic – just think we need to give credit where credit is due. Do not really think bank charges are relevant when discussing accounting disclosure.

It is very interesting to note that the last time Ecobank grew revenues was in 2014 and that the 2018 revenues are flat on 2017 with operating expenses growing 2%. Not a great result. The only reason for Ecobanks improved results is reduced impairments which is due to the fact that they seemed to over provide for IFRS9 day one adjustments of $299m through the balance sheet and destroying equity by the same amount . Including the $299m balance sheet impairment Ecobank made another loss in 2017 or the 2018 results are overstated… This seems a lot like creative accounting using rules based IFRS vs principle based accounting per the accounting framework. Nothing to celebrate except very good understanding of IFRS to manage a poor result.

Eobank also uses the incorrect Naira exchange rates to report its Nigerian results based on guidance from PWC and the EY GAAP manual. Nigeria has dual exchange rate environment and PWC Nigeria published a report saying that the NAFEX rate should be used. Fitch also raised this as an issue for IFRS compliance for Nigerian Banks Ecobank acknowledges this fact in its half year presentation on 17 page but refuses to publish its results using NAFEX rates as required by IFRS. The Difference between the CBN rate of 305 NGN and 360 NGN to the Us Dollar makes a very significant difference to Ecobank. Using NAFEX rates total assets reduce by $862m, Customer deposits reduce by $538m for Nigeria and Ecobank total results. Please see page 17 of the Ecobank Investors call presentation dated 25 July 2018 acknowledging the impact of using the correct exchange rate.

MTN Group is a great example of a foreign company listed on the NSE following IFRS. In their 2017 AFS they make it very clear in their disclosures why they are using the NAFEX rate note 19
“Following a review of the liquidity and sustainability of quoted exchange rates introduced in Nigeria and Sudan, the group changed the rates applicable to the relevant transactions and balances as well as the translation of the results, cash flows and financial position of these operations in the last quarter of 2017. The new quoted rates applied are considered to represent more appropriately the rate at which the future cash flows on the relevant foreign denominated transactions or balances could have been settled if those cash flows had occurred at the measurement date or the rate at which dividends can be remitted in respect of the translation of foreign entities. For MTN Nigeria, the group changed its reference rate from the Interbank rate to the Nigerian Autonomous Foreign Exchange (NAFEX) rate ….”

Not think you are being fair to label the $299m day one IFRS9 provision that went directly against equity creative accounting. This is a requirement of the statement and also in line with how one typically accounts for a change in accounting princples. Every bank that follows IFRS has done the same across the world. The charge relates to prior periods, not the current period. One can disagree with this treatment, but that is something to follow up with the standard setters.

Not saying Ecobank is a model corporate citizen, but need to be fair in criticism

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