The latest annual report by financial services group Absa shows the lender has been making steady progress in clawing back lost market share, with its regional operations playing a key role in its global expansion drive.
The report, published on Thursday, traces the progress made by the group since its separation from UK banking major Barclays.
The data shows the group added 1.1-million new customers since 2018 in its SA and Absa Regional Operations (ARO) markets.
Deposits surged from R858bn in 2018 to R1.34-trillion at the end of 2023, while gross loans and advances grew from R921bn to R1.32-trillion in the same period.
The group’s revenue rose R30bn in the five years under review. The lender in the annual report acknowledges that the pre-separation “turbulence” was challenging and the group had to contend with declining market share, weak revenue growth, rising costs and suboptimal capital allocations.
“The core business performance suffered as the focus shifted to the delivery of a complex separation from Barclays PLC,” the company reported.
“In recent years, we have made considerable progress in building a solid foundation for growth. The momentum gained has inspired us to raise our long-term ambition and accelerate our performance through a growth-led strategy. We are actively pursuing our ambition. We are creating a more diversified business across geographies, segments, and products.”
Barclays bought a majority stake in Absa in 2005, in a transaction that saw Absa change its name to Barclays Africa.
The UK lender, which at some point owned more than 62% of Barclays Africa, in 2016 announced it would sell its stake in the company as part of its focus on its domestic and US markets.
Barclays sold its last shares in the renamed Absa in 2022.
Diversification
Absa’s latest results show its geographical diversification strategy is yielding results with that business having contributed 29.9% to group earnings in 2023.
“Being a truly pan-African bank is vital to achieving our growth and scale ambitions. We see high-growth markets in Africa as an opportunity to grow boldly. This will reinforce our market-leading growth prospects and diversify revenue streams while reducing market-specific risk,” Absa said in its report, noting SA remained a strong foundation to achieve geographic diversification.
“Broadening our geographic franchise also directly aligns with our purpose by supporting socioeconomic development and climate action in the region. We are pursuing growth in existing markets by harnessing our brand and partnerships, as well as close collaboration within our ecosystem. We also aim to expand into attractive new markets.”
One of Absa’s strategic objectives include increased focus on entry-level banking, SMEs and bancassurance. The lender said it would continue to leverage its position in home loans and vehicle finance, while also expanding its market share in key sectors such as agri.
Absa chair Sello Moloko in his letter to shareholders said the group’s geographic expansion will be done responsibly in its ARO portfolio, particularly with sovereign headwinds in some of the markets where it operates.
“Economies across ARO are displaying increasing growth divergences, with East Africa showing better prospects than Southern Africa. While fiscal debt challenges, inflation, and cost of living crises persist, we are cautiously optimistic about longer-term growth prospects in our ARO markets,” said Moloko.
“The sovereign debt challenges we are seeing in some of the markets underscore the importance of sound financial management coupled with responsible and transparent borrowing in order to minimise the risk of debt distress.”
Several African nations have experienced a rise in sovereign defaults, with 14 incidents since 2020, including Ghana and Zambia.
Moloko also reflected on SA, the group’s biggest market. He said growth in SA had been stymied by power shortages and the “increasingly disruptive” logistics backlogs.
“SA has little choice but to pursue private sector participation as part of the solution to our challenges. The efforts towards private sector participation in ports and rail networks and the establishment of the National Transmission Company are encouraging steps.”
Absa said that for 2024 it had allocated R5bn to strategic initiatives, and that 58% of its future investment would be allocated to being a digitally powered business.
The group’s CEO, Arrie Rautenbach, said in his letter to shareholders that the company was actively looking to deploy capital in attractive growth opportunities across the continent, in furtherance of its blueprint to be a “leading pan-African” financial services provider.
“Our recently announced acquisition of HSBC Mauritius’ Wealth, and Personal Banking and Business Banking businesses reflects this ambition. Against this background, we also made progress in positioning Absa as a facilitator of trade flows into Africa through a strategic presence in the north, west and east of the globe.
“We were delighted with the approval of a wholly foreign-owned enterprise permit to provide general advisory services to clients based in China for transactions in SA and across the African continent.”
Correction: April 2 2024
A previous version of this article reported that deposits and loans grew from R858m and R928m, in fact deposits surged from R858bn in 2018 to R1.34-trillion at the end of 2023, while gross loans and advances grew from R921bn to R1.32-trillion.
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