Absa profits up; doubles half-year dividend

FIFI PETERS: Absa is the second of the big five banks to report its annual financial results. Like Nedbank last week, Absa reported higher profits [on Monday] and also more than doubled its annual dividend to R6.50/share.

We have the CEO, Arrie Rautenbach, who started in the job in March this year, on the Market Update for more on the group’s numbers.

Arrie, thanks so much for your time. I see that it’s around three months that you have been in the position as CEO if I take it to your year-end, the end of June. How are things going?

ARRIE RAUTENBACH: Fifi, thank you very much. If you take it to the end of June, it is three months, or let’s say sort of the first 100 days. If I look at the results that we put out to the market, I must say I feel very good about where we are as an organisation – our posture in the marketplace and the results that we’ve put out. So as an organisation we feel very proud about those numbers, and as the new CEO I’m particularly proud that I can share those numbers on behalf of 35 000 colleagues with the market.

FIFI PETERS: What we saw in the pandemic was banks taking on extra caution, given the uncertainty in their environment and taking out these massive provisions which are now coming back into your statements, and are now filtering into profits. I’d like to understand then, if we look at your 27% increase in Heps [headline earnings per share], how much of this is as a result of pre-provisions coming back into the system, and how much of it is as a result of a resilient economy?

ARRIE RAUTENBACH: Fifi, I think what’s very important is that when you look through our results you would understand that the numbers that we’ve just announced to the market are actually a factor of decisions that we’ve taken over an extensive period of time.

We’ve been reporting pre-provision operating profit growth for a number of years. And if you look at pre-provision operating profit up sort of 23%, if I’ve got the numbers right, then you can see that our performance is as a result of underlying growth. If you look at underlying growth, [there is] very strong revenue momentum that we are seeing.

So I think for us what’s very important is the decisions that we’ve taken over a number of years to get our organisation set up for growth, and growing in the right areas [is] beginning to pay off very nicely for us, apart from the customer-centric choices that we made throughout the pandemic. So really a very good sense of underlying performance also on the back of strong growth.

That growth agenda for us is an important agenda going forward, Fifi. So we are certainly going to talk about that a lot more in our next horizon.

FIFI PETERS: It looks like the retail part of the business is performing a lot stronger than your corporate client. Perhaps you can break down the respective clients for us and how you describe their state right now. How is the state of Absa’s retail banking consumer, and how different is it from the state of your corporate banking consumer?

ARRIE RAUTENBACH: Fifi, thank you very much for that question. I think if you start with our corporate bank, it’s a business that has also focused on growth over the last couple of years as well as new customer acquisitions. What we are particularly encouraged by is the segments that we have exposure to in that environment. If you look at the loss ratios that we’ve seen in the first half of this year, [they are] extremely low.

So that business is still very well positioned and our customers are very, very resilient, in fact, with quite a bit of capacity to invest if the right opportunities come along.

If you look at our business banking environment, we are very strong in the upper end of business banking, very strong in the agri environment. Again, we’ve seen very resilient performance there, [we’re] very close to those customers, and again the exposure that we’ve got there speaks to quite a resilient base.

If you look at our retail businesses, a very strong bounceback on the back of recovery post-Covid. We’ve been clear that we want to regain market share over time across all those businesses, and if you look at our market share postures now on the lending side, across all our businesses, [that’s] sitting at 22% on the liability side, which is the deposit side, also sitting at 22%. So I think we are very confident that our customers have shown the resilience so far.

Of course we think about the macro environment all the time and what that means for our consumers. We’ve been very conscious about that for the last 12 months or so already. And when we think about the risk appetite in this environment and the environment we’re going into, Fifi, we start stressing this, especially for affordability as part of our lending approaches.

So if we look at risk appetite across our businesses, we haven’t made any material or risk-appetite cutbacks yet. We are not seeing any sort of distress yet to force us to start doing that. But of course we’ll stay very close to the macro environment, and if we think there’s reasons for us to start doing that, [if] we start seeing some early distress coming through, we’ll take the necessary actions.

FIFI PETERS: Sir, one last brief question on the ‘grey list’. Everyone’s talking about it right now. How worried are you about it and, if South Africa gets put on this list, whether you think right now your money-laundering and terrorism-financing controls are up to scratch?

ARRIE RAUTENBACH: Fifi, thank you very much. This is obviously an area which we are very focused on and which we are very concerned about.

This is also an area which you obviously understand we have to work across, not as an individual bank – as Absa, to your question, obviously we are very confident about our own controls and processes in place – but also as a banking sector. And then of course, as we work with National Treasury and also law enforcement because this is a collective effort across the board through that whole value chain.

The first prize for us is that we don’t end up on that greylist. However, should we end up on that greylist, we have to continue with all the efforts across all these areas that I’ve mentioned to try and get out of that situation as quickly as possible, because in the long run it is simply not a position that we want South Africa to be in, because it speaks to our competitiveness at a global level. And especially if sentiment starts changing, that’s not a position we want to find ourselves in.

FIFI PETERS: Right. That’s where we’ll leave it then. That was Arrie Rautenbach, the CEO of Absa.