Wednesday, January 26

Absa recovers, but continues to lose customers

Absa Group reported a strong profit rebound in its commercial and retail banking (RBB) franchises, compared to the lockdown-affected first half of 2020, but the group is not yet adding customers.

The number of clients is 2% lower than a year ago, but the group says that these “have been stable at the December 2020 level of 9.5 million”. It says that “the attrition observed in the second half of 2020, specifically in the entry-level banking segment, has stopped.”


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Read: Absa keeps losing customers

It is worrying that the number of “top customers” is down 3% from the previous year to 2.8 million. Absa says this is due to “lockdown restrictions in relation to the pandemic” that “continue to moderate transactional activity and reduce customer revenues.”

Its RBB unit’s overall earnings are up more than 600% from the first half of last year.

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 that excluding provisions, earnings contracted 14% compared to the first half of 2020. This “was driven by the impact of excess mortality lawsuits, customer-centric rate decisions, and increased rates. incentive-related costs and restructuring costs. ”

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

Main earnings First semester of 2019 1S 2021
Mortgage loans 750 million rand R1.368 billion
Vehicle and asset financing 122 million rand R240 million
Daily banking R1.998 billion R1,607 billion
Relational banking 1.684 trillion rand 1,462 billion rand
Sure 584 million rand (R297 million)
Total RBB SA (including others) R4,847 billion R4,052 billion

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

Total revenue in its transactional banking segment (Everyday Banking) decreased by R999 million from 2019, resulting in a R391 million decrease in earnings.

Boost loans

The earnings growth at RBB is being driven by its deliberate push for secured loans. Absa says that the number of registered mortgage loans “increased by 110% compared to 2020 and 47% compared to 2019”, while the number of loans for financing vehicles and assets granted “increased by 33% compared to 2019, in a market that contracted by 10% ”. Net advances for mortgage loans totaled R257 billion, an increase of 8% over the comparable 2020 period, with vehicle and asset financing totaling R94 billion, an increase of 14%.

In 2019, Absa stated that its 2021 market share targets for retail deposits and retail banking advances were 22% and 23%, respectively. At the end of June, they stood at 21.8% and 22%, respectively. It will likely fall short of those targets, despite respectable increases in both from 2019 levels.

Read: On the lookout for customers, Absa weaves a banking network that spans the entire world

Companies are notably parking cash, with a 35% year-on-year increase in customer deposits (up to R329 billion) at their South African corporate and investment bank. (In June 2019, this was R208 billion.) Absa says on the bank’s retail side, “The growth of investment deposits was assisted by migrations led by clients of the Absa Money Market Fund after the announcement of its closure in April 2021.”

Read: Absa closes money market fund

His efforts to overhaul his RBB unit are paying off. Absa says that “the digitization of processes and products during the last two years has allowed the business to continue driving efficiencies that have reduced the cost-income ratio to 56.8% compared to 58.4% in 2018.” This is a significant decrease.

For the group, expenses increased 5%, primarily driven by a 6% increase in personnel costs and an 18% increase in technology expenses. Its cost-income ratio is 54.9%.

As expected, Absa says that the credit impairment charge was “significantly lower” at R4.7 billion (compared to R14.7 billion in the first half of last year). The group’s loan loss ratio improved to 0.88% (with RBBs at 1.33%). It says that “after last year’s substantial hedge construction, credit impairments are expected to decline substantially, resulting in a credit loss ratio around the mid-point of our range throughout the cycle of 75 to 100 bps. [basis points]”.

Absa says that “while the cost of looting, destruction of property and disruption of trade has been high and is being quantified, the long-term economic impact remains unknown.” It says that 22 branches and 233 ATMs were “completely vandalized and another 2,500 point-of-sale devices” were “stolen or damaged.”

The group reported overall (normalized diluted) earnings per share of 1,018.2 cents, an increase of 487% from last year, but an anemic increase of 4% from the first half of 2019. The bank declared a dividend of 310 cents per share. “A dividend payment rate of 30% is expected for 2021, which will increase to 50% in the medium term.”

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