In an increasingly difficult trading
environment in South Africa, Absa’s positive earnings growth in
2008 is an achievement. But while retail profits fell by 25
percent, the bank’s retail CE0, Louis von Zeuner, tells
Douglas Blakey that Absa’s
distribution initiatives have helped it reach record numbers of
customers.
Absa’s innovative multichannel distribution strategy
has helped the bank confront increasingly challenging market
conditions in South Africa, with its customer base increasing by
12.3 percent during 2008 to pass the 10 million barrier.
Go deeper with GlobalData
“That excites us,” said Absa’s CEO of retail
banking, Louis van Zeuner. “It means that one in three of South
African adults with access to a bank, banks with Absa.”In
particular, the bank has enjoyed considerable success in growing
the use of its digital channels, becoming the first South African
bank to record one million internet banking users and, in late
February, will also become the first bank in the country to
register its one millionth mobile banking customer (see
Absa smashes 1m m-banking
barrier).
Absa’s m-banking offering will attract further
publicity in 2009, if as the bank has forecast, its regular mobile
banking customer number overtake its online clients.
Investment in the bank’s digital channels has
not, however, come at the cost of scaling back investment in its
branch network. Absa has grown the number of staffed outlets from
1,011 a year ago to 1,192 at the end of 2008. Von Zeuner said there
will be further branch expansion.
“There is a huge drive from the financial
services sector to take banking to the people, with a large part of
the rural areas of the country still not having access to banks, so
there is huge scope to increase our network and we will surely do
so, but not at the same pace as in recent years.”
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataAt the lower end of the income scale, Absa’s
Allpay subsidiary continues to play a key role, disbursing social
grants and pension payments, a service the bank plans to enhance,
while Absa’s partnership with Western Union continues to increase
the bank’s reach.
The bank’s ATM network, with around 2,000 more
ATMs in the country than its closest rival, has also played its
part in providing a level of convenience which has resulted in
record retail banking customers.
|
Performance |
|||
|
Absa – fundamentals, |
|||
|
2008 |
2007 |
% change |
|
|
Net interest income (ZARbn) |
21.79 |
18.89 |
15.3 |
|
Net fee and commission income (ZARbn) |
13.34 |
11.60 |
15.0 |
|
Total assets (ZARbn) |
773.8 |
640.9 |
20.7 |
|
Profit before tax (ZARbn) |
15.20 |
14.08 |
7.9 |
|
Number of customers (m) |
10.7 |
9.6 |
11.5 |
|
Number of staffed outlets |
1,192 |
1,011 |
17.9 |
|
Number of ATMs |
9,104 |
8,524 |
6.8 |
|
Return on average equity (%) |
23.4 |
27.2 |
|
|
Return on average assets (%) |
1.37 |
1.68 |
|
|
Cost-income |
49.4 |
51.7 |
|
|
Source: Absa |
|||
And while Absa’s retail division
posted a 25 percent fall in earnings to ZAR3.7 billion ($367
million), von Zeuner is keen to flag-up the bank’s success in
funding its own growth, thanks to an increase of almost one-third
in deposits.
The bank has successfully controlled its
expenses, with its cost income ratio falling by 230 basis points to
49.4 percent, despite Absa’s ongoing branch and digital channels
investment.
“It has been a time to ask more of our staff
but they rose to the occasion and that has prevented us needing to
look at staff number retrenchment.”
To manage costs, the bank continues to invest
in its temporary branch structures, deployed to serve the banked
population in rural areas or townships. These branches cost around
50 percent less than bricks-and mortar outlets, and can be used to
test the feasibility of making Absa’s presence more permanent in a
particular area.
Linked to the temporary branches, Absa
operates a fleet of consultants in vehicles, which von Zeuner said
physically brought Absa closer to customers and makes sure a
complete range of products are available.
The bank also continues
to derive benefits from its established relationships with
retail franchises, allowing it to operate portable in-store sales
kiosks. It has relationships with a variety of non-bank businesses,
using them to help give it access to specific consumer segments or
keep down costs while maximising its distribution reach.
These include food retailer OBC Chicken, PC
supplier Computer Corporation and retail chain Woolworths, in which
it acquired a 50 percent stake last year (see RBI
591).
Product-wise, von Zeuner said, the bank has
looked at simple payments to increase customer use and acquisition.
Recent launches include a prepaid debit
card and CashSend, a cardless ATM innovation, which facilitates the
transfer of cash to the unbanked. It has also sought to
encourage savings and reduced personal debt, by setting up a debt
repair line, designed to help over-extended customers adopt responsible debt management
practices.
“At these times when the consumer does not
have surplus cash, it is not the time to be pushing the sales
activities of the bank so hard. To customers, we have said your
bank is not just something that exchanges products but can also
offer advice,” he added.
The year ahead…
As for the year ahead, von Zeuner is
at pains to stress the need not to focus on the gloomy world
economic climate and instead to explore fresh business
opportunities.
“I would like
to improve our cross-sell ratio and though 2009 will be quite a
tough year, it is a priority to be close to our customers in
difficult economic conditions. I still want to see a growth in
customer numbers and if at the end of the year we have put on
another 8 percent and raised our cross-sell ratio that will be a
good year.”
Von Zeuner argues banks that differentiate
themselves by means of service and which support customers in
difficult times, will gain a return in the better times, so Absa
continues to advertise, invests in its brand and has raised its
sponsorship investment.
In particular, in 2008 the bank followed the
model of parent group Barclays and sponsored South Africa’s Premier
Soccer League (PSL) in a five-year deal, augmenting its ongoing
sponsorship of the country’s national football team.
The PSL deal also led to a related promotion
in conjunction with its push into the mass market card sector,
offering customers the chance to take advantage of more competitive
interest rates. The bank has experience in this regard, having
previously launched an affinity card scheme that features cards
themed around South Africa’s provincial rugby teams.
Absa has also explored the opportunity to
expand across Africa, to augment existing international operations
in Tanzania, Mozambique and Angola. In the first instance, it will
set up representative offices in Namibia and in Nigeria.
“In troublesome times one should not run ahead
of ourselves and we need to tread carefully. But it is on our radar
and is a key part of our business. There is a lot of project
activity pan-Africa where we can participate and this will allow us
to establish our brand in those countries,” von Zeuner said.
And while the bank’s initial forays into
Namibia and Nigeria will focus on commercial and investment
banking, von Zeuner concluded: “if the right opportunity comes our
way we will pursue the retail opportunity as well.”
Results
Resilient Absa posts 10%
profits rise
Absa, the first of the Big Four
South African banks to report its 2008 full-year results, posted a
robust set of results given the economic climate, with attributable
earnings up by 10.4 percent to ZAR10.59 billion. Revenue grew by
20.4 percent to ZAR42.9 billion. Highlights included an increase in
profits of the bank’s corporate and business arm of 29.5 percent
year-on-year to ZAR2.8 billion, with Absa Capital’s earnings up
29.8 percent to ZAR2.2 billion and bancassurance up by 6.3 percent
at ZAR1.59 billion.
But Absa, the country’s largest retail bank by
deposits, did not escape the worst of the souring global economy.
Credit impairments as a percentage of average advances more than
doubled from 0.58 percent in December 2007 to 1.19 percent, while
the slowdown in consumer spending and reduced demand for loan
products hit the bank’s retail arm, with full year profits down 25
percent to ZAR3.7 billion.
The bank reduced wholesale funding by growing
deposits, with retail and commercial deposits up by 32.4 percent
and 29 percent, respectively; by contrast, advances grew by only
11.3 percent.
But the higher cost of the bank’s wholesale
funding contributed to a decline of 20 basis points in Absa’s net
interest margin during the year to 3.63 percent, with net interest
income increasing by 15.4 percent to ZAR21.79 billion. Non-interest
income grew by 26 percent to ZAR21.1 billion, with net fee and
commission income, which constitutes around 63 per cent of
non-interest income, up by 15 percent to ZAR13.3 billion.
“All in all I am quite happy with the
results,” von Zeuner told RBI. “Trading conditions have
been quite difficult and the consumer is really under stress at the
moment. Year-on-year, there is negative growth in retail but only
because of the impairments. Strip out the impairments and we were
still able in this economy to grow our top line by about 15
percent.”
