JOHANNESBURG (BT) – Despite a gyration of economic tides on the African continent, the Absa Group FY19 earnings reflect resilience in earnings and growth impetus across the entire franchise. Established in an interview by Kwacha Arbitrageur arm of The Business Telegraph, with the Group Deputy Chief Executive Peter Matlare on the morning of 12 March, Absa delivered a solid performance with 17% bullish growth in profitability, a 14% rally in total revenues and a decline in cost to income ratio. All this, at a time when the group was not only operating in African challenging economic environment but was also managing a complex metamorphosis of legal persona from Barclays Plc to Absa Plc.
The visibly calm Group Deputy CEO echoed positive jaws the bank delivered as its Earnings Per Share (EPS) levitated by a 16% margin while keeping its shareholders happy at a Return on Equity (ROE) of 19%. Peter Matlare could not help but highlight the African choppy water environment of last year which had an array of jurisdictional regulatory developments gravitating around fees and other unique pronouncements that the bank had to navigate around to stay afloat.
The Group places great value on people, who he said have been at the helm of the separation between Barclays Plc and Absa Plc which is now 75%-80% complete. These changes, he highlighted, require both day and night changes without disrupting business. As such people tasked with the transition had to work Friday to Sunday non-stop to make the metamorphosis a seamless success. This process required not only meticulous planning and execution but delivering on time and within the allocated budget. The Absa Group draws confidence in the quality of leadership across the African Regional Operation both at board and executive management steering the franchise forward.
“We expect nothing but the right outcomes because we believe the group is doing the right things from brand change to client experiences,” Matlare said in his introductory remarks during the interview.
Q&A with the Kwacha Arbitrageur
Regional Operations (ex. SA) delivered solid performance. Absa Regional Operations posted headline earnings of 16% to ZAR3.6billion resulting in a pre – tax profit higher ebb of 17%, which Matlare attributed to resilient business landscapes in the 11 African jurisdictions. Matlare, highlights quality and effective leadership in the African operations as key drivers of strong performance.
“Absa has been on a challenging 18-month journey transitioning from Barclays Plc to Absa Plc while simultaneously building a strong Pan -African network of Corporate and Investment Banking (CIB) business that embraces opportunity both regionally and globally. This is to spur healthy growth we are seeing today,” Matlare re-iterated. The velocity of Investment Banking (IB) business expansion has grown to double digit growth over the last 5 years servicing key corporates across the mining and energy sectors. From 2013 when Absa bought the Barclays Plc business, Corporate and Investment Banking business has grown 16% higher. He highlighted Maamba Collieries for energy finance deals and the mines in the Zambian jurisdiction.
Higher impairments, a macroeconomic stress indicator. Queried on the 24% rise in credit impairments groupwide, Absa Group Chief Finance Officer Jason Quinn attributed, the widening to stress cycles in not only the South African but other jurisdictions. A few credit names drove the growth in credit impairments, however the health of the portfolio remains resilient.
Pan-African expansion appetite outside the 11 countries. Matlare’s vision extends wider than the current expanse in 11 operations outside South Africa.
“We have a growth mindset evidenced by the Memorandum of Association (MOA) signed last year with Société Générale to penetrate the francophone West African nations to leverage off continental partnerships, which we believe will complement geographical complexities. In the evaluation of our opportunities, we remain cognizant that our expansion is not limited to brick and mortar. As such we seek to be the leading payment platform provider and through technology partnerships, may not need to be physically present in some jurisdictions. However, we still have plans to widen our latitude to more countries but cannot disclose which ones at this moment as our focus is still on completing and delivering the complexities around the Barclays divorce within budget and prescribed time frames while simultaneously churning out stellar results and returns to our shareholders,” Matlare said.
“The Retail and Business Banking (RBB) space has been endowed with modernization of platforms to transform client experiences through avenues such as Mobile Money (MoMo) solutions allowing for digital integration with the Mobile Network Operators (MNO) and Fintech’s. Digital Channels is a key priority for our tech savvy journey,” Matlare said.
Absa Zambia aggressive performance despite economic turbulence. Despite macroeconomic turbulence in the Zambian franchise led by Mizinga Melu, Absa has continued to deliver stellar earnings and have exhibited a solid balance sheet growth of over 61% transcending the last 3 years.
Read also: Barclays Zambia credit book surges 40% underwriting future earnings as bank vies to be largest bank by asset size
“Zambia has been through similar cycles, most being currency related. The Absa Group however draws comfort from the experienced central bank team at the Bank of Zambia who continue to provide a stable policy environment which has allowed Absa to seek and harness opportunity while keeping close to its clients in difficult times, Matlare said.
The Kwacha Arbitrageur forecasts that the steady performance of the Zambian franchise could see the Absa subsidiary in contention to be the first K1billion (after tax earnings) bank in half a decade.
“The Group continues to look for appropriate ways to navigate challenges such as tracking the cost base to manage them lower, investing in brand image and ultimately improving the client experience,” Deputy Absa Group CEO said.
Absa’s stance on Environmental Social Governance Risks. Absa remains committed to Environmental Social and Governance (ESG) risk management and will in a weeks’ time be concluding its coal financing protocols and will be first African bank to sign up to the United Nations Charter. Absa takes environmental risks seriously as a springboard to not positioning itself for future and strategic opportunities but also aligning with the times as an advocate of climate change resilience. In addition to client centricity, the environment is top priority for the Absa Group.
Absa’s preparedness for non -financial risks such as COVID-19. Responding to a query on evolution of threat landscape from financial to non – financial risks in the wake of climate change and disease pandemic, Peter Matlare acknowledged the COVID-19 effects and impact on the global environment.
“We acknowledge that coronavirus impacts health and has economic consequences,” Matlare said. We have in place protocols that address social health and welfare safety levels which is cardinal for our staff and clients. To that effects non-essential travel has been restricted to mitigate exposure to the deadly virus. Other measures include quarantine capabilities, reviews and checks all culminated in a robust disaster recovery mechanism across the franchise.
“Risks are indeed evolving because over three weeks ago, World Health Organization (WHO) did not see coronavirus as a global pandemic but now they have declared it one. Absa has in place good risk mitigants to include interest rate hedging and operational capabilities to address uncertainty the pandemic may cause, he said.
About the interviewer, Mutisunge Zulu is Founder and Lead Analyst of The Business Telegraph. A Financial Analyst, Economist and Strategist currently serving as National Secretary for The Economic Association of Zambia.
1 Comment
Pingback: Daily FiZ - Friday 13/03 - Financial Insights