Absa is to recombine its three SA retail banking businesses into a single retail bank in a move that suggests it is walking back from some of the strategies pursued by former CEO Arrie Rautenbach, who took early retirement in August amid disaffection within the banking group’s staff.
The changes to the retail bank will kick off on January 1 and the group is working with its staff on the transition, which Absa interim CEO Charles Russon said was about the group’s interaction with its customers, not about cost-cutting.
“This is about making sure we show up for our customers in the right way, making sure we don’t have any artificial barriers with them,” Russon said on Friday morning, after the group announced in a trading update that its earnings for the full year would be materially stronger than the 5% decline it reported at the half year.
Absa’s retail bank had historically been its big strength, but it has been underperforming its competitors for some years. Under Rautenbach, the SA retail operation was divided into “everyday banking”, “relationship banking” and “product solutions” clusters, mostly serving the same customers.
Rautenbach had also put priority on regaining Absa’s “natural” market share in retail to make up for the share it lost in the years in which the bank was a subsidiary of UK-based Barclays.
But Russon said on Friday that the concept of a natural market share did not resonate with him.
“We have got scale across our businesses and for us it is now about precision and execution,” he told Business Day. “We want to grow but in the right way and it’s not just about chasing market share.”
Russon said the group acknowledged that it had had some missteps and needed to win back the trust of its investors and stakeholders. “That starts with execution ... and we have to be really focused, really precise,” he said.
It was early days but the group had started to focus on capital usage and on measuring profitability by customer, client and segment, and how these interact, Russon said. It was pleasing that the second half of the year was much better than the first, and the group was working to deliver a good story again next year and in the medium term.
Absa finance director Deon Raju said the SA business, particularly the retail bank, was the main driver of the stronger full-year earnings growth, with credit losses improving faster than expected. “What this is telling us is that the consumer distress we’ve seen over the last 18 months has certainly turned and is moderating,” Raju said.
“It’s early days around withdrawals of pensions under the two-pot [system], but we can certainly see that consumers are using those to support their own personal expenditure needs for the moment and they’re also using it to pay off some short-term debt, which is very expensive,” he said.
Where the group’s Africa regions operations had done better than SA in the first half of the year, preventing the decline in headline earnings from being even worse, Raju said this time the Africa regions had been a 3% drag on earnings because of the rand’s strength. But African Regional Operations continued to show strong growth, in the double digits, in local currency terms.
The group said in its trading statement on Thursday that the operating environment in SA and its Africa region countries had been largely as expected year to date, though conditions in Kenya, Zambia and Mozambique were more challenging, and the weaker average exchange rates against the rand were a drag on group revenue. It continues to expect mid-single-digit revenue growth with broadly similar growth in net interest income and non-interest income.
It said it continued to expect a return on equity of 14%-15% in 2024. This would improve to 16% in 2026, driven by a further recovery in credit impairments, particularly in SA retail, as well as by a new productivity programme to improve the group’s cost-to-income ratio, efforts to improve non-interest income and better returns from the Africa regions in the medium term.
The Absa board has given no timeline for the appointment of a new permanent CEO, but Russon, who took office as interim CEO three months ago, is not constrained in terms of the changes he can make to improve the group’s profitability.
Formerly head of Absa’s corporate and investment bank, Russon is the sixth executive to lead Absa in just under six, turbulent years.
Update: December 8 2024
This story has been updated with new information.
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