Absa’s new CEO, Maria Ramos, says impairment charges at
the South African bank’s retail banking unit will peak by the end
of the year. And in an upbeat assessment, she says customer
deposits are rising, costs are under control and all-important fee
income continues to grow at a steady pace. Douglas Blakey reports.

Against the backdrop of South Africa’s first recession in 17
years, personal debt levels at alarmingly high levels combined with
heightened fears over job security and a weakened appetite for
credit, Maria Ramos’s appointment as Absa’s CEO six months ago
could not have come at a more challenging time.

With the biggest distribution and ATM network
(1,081 outlets and 9,211 ATMs) in the country and the largest
retail customer base (11.3 million as at 30 June), Absa, 55.4
percent owned by UK-headquartered Barclays, could not avoid taking
a hit as customers struggled to pay back loans.

Retail banking profits fell in the first half
by almost one-third (see below), with the home loans unit
of the country’s biggest mortgage provider slumping to a loss of
ZAR721 million ($94.4 million) for the six months to 30 June.

Maria Ramos, Absa

But while arrears and non-performing loans
have continued to rise, the pace of increase is slowing.

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.

Company Profile – free sample

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 GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

“On the retail side, I think we will see
impairments peak in the fourth quarter and on the corporate banking
side, sometime in the first half of next year,” said Ramos in an
interview with RBI.

“Of course, it will depend a lot on the
performance of the economy… the 500 basis points in rate cuts
already this year is quite deep… but it is possible we may see a
quicker recovery.

“Already there are early signs of things
stabilising, but it is still pretty difficult for consumers,” she

And Ramos is quick to point out that with
average debt to disposable income ratios of around 77 percent,
customers will not go out and start spending and taking on fresh
debt at the first signs of a recovery.

“Meantime, we need to make sure we make a
continuous effort to exceed customer expectations in terms of
customer service. Now I know all bankers will say they place
emphasis on service levels, but I believe strongly we must work
closely with customers not just in the good times,” she

“Customers have significant debt stress so we
are out there, working with them in terms of offering debt advice
and restructuring. We are proud to be the savings bank of the
nation and we will maintain that position by promoting a culture of
excellence. Customer service is a 24-hours-a-day,
seven-days-a-week, 365-days-a-year effort.”

Credit Cards

Major integration project

As part of Ramos’s drive to promote
service levels, she is overseeing a drive to streamline the bank’s
back-end systems in a major business integration project. The aim
is to rid the bank of duplicated processes and focus staff energies
on the customer-facing front-end.

She says she is also committed to major
investment in the bank’s human capital, in the belief that
well-trained, motivated and incentivised staff will naturally
improve service levels.

Ramos added: “When customers are not getting
the satisfaction they expect, they will email me and on a number of
occasions, I have picked up the phone myself to speak to the
clients and when I do, I will keep in touch personally with them to
ensure the complaints are resolved.”

Ramos’s second major retail priority, upon her
appointment six months ago, was to up the ante in terms of the
bank’s cross-sell ratios, with early encouraging signs.

“Retail income is up 11 percent and the team
has done well under exceptionally difficult conditions. In the
non-interest income figures, it is pleasing to see the success in
bancassurance for example,” she said.

The bank’s much-admired focus on distribution,
in particular its innovative, diverse multi-channel strategy, best
evidenced recently by the runaway success of its mobile banking
channel, can, argues Ramos, continue to promote further significant
consumer banking growth.



In February, Absa become the first South
African bank to publicly announce it had signed up one million
m-banking customers, following a surge in popularity, with up to
5,000 clients registering for the service every day (see RBI 607). A mere four months later, the
number had risen to 1.4 million customers.

“It is exciting that our customers are using
the electronic products more and more, and in m-banking, we intend
to explore this and take this channel to its full potential,” she

Barclays executives from around the world have
been making regular visits to Absa, to tap into the South African
m-banking market leader’s pool of knowledge.

“It is an area of excellence for Absa… and
adds value to the Barclays franchise,” Ramos said.

And while the increasing use of direct banking
channels may impact on branch use, Absa closed only 20 branches
last year.

Leveraging investment

Just as Barclays will look to benefit
from Absa’s m-banking programme, its South African subsidiary will
look to leverage its parent’s success in the investment banking

“There are lots of opportunities for us to
sell more sophisticated products and so we have established, via
Absa Capital, following the Barclays Capital model, products aimed
at the top end of the market,” Ramos said. “We will utilise the
Barclays platform to sell our investment banking proposition where
we can.”

It is a similar story in the cards sector,
where Absa has been benefiting from its close working relationship
with Barclaycard.

As for the 2008 deal to acquire 50 percent
plus one share in the consumer finance arm of retail chain
Woolworths – Woolworths Financial Services, an acquisition designed
to boost Absa’s share of the consumer finance market – it is early
days still, said Ramos. But she added: “It is now coming into its
own and bringing an additional dimension into the cards space.”

As for the bank’s international ambitions, the
unspoken message from Ramos was ‘watch this space’, as the
ramifications of the 2008 decision by Absa to shelve plans to
combine its African business with that of Barclays continues.

“We will not pursue those discussions with
Barclays further. Barclays has its own emerging markets strategy
which is working well and we have our businesses in Mozambique and
Tanzania… well Barclays is also in Tanzania. Does it make sense for
us both to be there… No?

“So we have to resolve that, but if there is a
deal in Africa that we can do, that is value accretive and will add
to the Barclays partnership, we will do it,” she concluded.


Absa takes retail hit as
earnings slip by 28%

Absa’s retail unit posted
attributable earnings down 30.9 percent to ZAR1.34 billion ($175.4
million) for the six months to 30 June, following reduced demand
for lending products, rising impairments and stricter lending

Group earnings for the period slipped 35.6
percent to ZAR3.6 billion, largely as a result of impairments more
than doubling to ZAR4.8 billion.

On a positive note, retail net interest income
and non-interest income both rose, up 7.2 percent and 16.6 percent
respectively, for the first half, while the bank contained
operating expenses growth to 0.8 percent, with the retail
cost-income ratio falling more than 500 basis points to 51.5
percent (see table below).

Retail advances at Absa grew only marginally,
up by 4.4 percent but the bank posted the biggest increase in
retail deposits of its peer group, up by an impressive 13.6 percent
year-on-year boosted by new investment and savings products.

But in a statement to accompany the interim
results, the bank said the impact of the worsening economic
environment and a lower interest rate environment have become
evident in the period since December 2008, since when deposits grew
by only 0.5 percent.

The October 2008 acquisition of Woolworths
Financial Services, a deal designed to boost Absa’s share of the
consumer finance market – mainly via the distribution of credit
cards at the point of purchase – contributed to a 38 percent
increase in credit card advances.

The bank’s credit card market share rose
marginally in the first half, to 26.5 percent (26.3 percent in the
year ago period), a sector of the market which rival Standard Bank
continues to dominate, albeit by a diminishing margin, with a 34.4
percent market share.

Absa’s rivals had mixed fortunes. Operating
expenses rose by 13 percent at rival Standard Bank, contributing to
a 120 basis points increase in its cost-income ratio to 49.9
percent, while retail earnings fell by 26 percent to ZAR2 billion.
Nedbank posted the sector’s weakest performance, with retail
earnings almost wiped out, down 93.5 percent to ZAR47 million.


South Africa – interim 2009
results, ranked by retail earnings(1)


Group profit (ZARbn)

Retail banking profit

Group assets (ZARbn)

Retail deposits

Retail loans (ZARbn)


y-o-y % change


y-o-y % change


y-o-y % change


y-o-y % change


y-o-y % change

Standard Bank(2)






















First Rand(1)(4)






















(1) Absa, Nedbank and Standard Bank figures
relate to the six-month period to 30 June 2009, while First Rand
figures relate to the six-month period to 31 December 2008; (2)
retail profit, deposits and loans relate to Standard
Bank's Personal & Business Banking unit; (3) retail
banking profit comprised of retail branch banking (ZAR1.74bn
profit); Absa Home Loans (-ZAR0.72bn); Absa Card (ZAR304m); and
Absa vehicle and asset finance (ZAR13m); (4) retail loans, deposits
relate to First National Bank South Africa; (5) retail profit,
deposits and advances relate to Nedbank's Retail unit.
Source: RBI