Group provided relief to more than 670,000 customers

*Salient points

• Revenue increased 2% to R81.4 billion 
• Operating costs fell 2% to R45.6 billion
• Cost-to-income ratio improved to 56% from 58%
• Pre-provision profit increased 7% to R35.8 billion
• Impairments increased 163% to R20.6 billion
• Headline earnings declined 51% to R8 billion; R9.47 per share
• Return on equity declined to 7.2% from 15.8%
• Group CET 1 ratio of 11.2%, well above regulatory requirements
• No dividend declared, to conserve capital

*Note: Normalised values are reflected (stripping out the effect of the separation from Barclays PLC)

15 March 2021 

Absa Group Ltd., one of Africa’s largest financial services provider, today reported a 51% decline in normalised headline earnings to R8 billion after impairments nearly trebled to R20.6 billion amid the economic downturn that was precipitated by the COVID-19 pandemic.

Earnings and returns improved materially in the second half of the year as lockdown restrictions eased, particularly in South Africa, which accounts for more than 80% of the group’s earnings. Group headline earnings fell 82% in the first half of 2020 compared with the first half of 2019. Headline earnings in the second half of last year were 19% lower than in the second half of 2019.

As COVID-19 lockdown restrictions were implemented across countries last year, Absa moved swiftly to adopt remote-working, implement payment relief measures for clients, and to launch initiatives to support the communities we serve, while ensuring operational and financial resilience.

“Absa responded decisively to the COVID-19 pandemic and the resulting economic downturn. We supported our staff, customers and communities through a difficult period and produced a resilient financial performance in a very challenging operating environment,” said Daniel Mminele, Absa Group Chief Executive. “We also successfully completed our separation from Barclays and reviewed our strategy to ensure that it continues to be relevant in the context of rapid changes in the operating environment.”

COVID-19 pandemic response

Colleague safety and wellbeing was the immediate priority, following which substantial customer and community support initiatives were implemented.

“We believe we offered the most comprehensive relief programme in the South African banking sector, providing approximately R9.8 billion in cash-flow relief to 613 000 retail and business banking customers,” said Mminele. In addition, Absa waived various transaction fees and provided insurance premium relief, while temporarily extending credit cover to include a wider definition of ‘loss of income’ events.

Absa subsidiaries in countries outside of South Africa extended COVID-19 payment relief to more than 60,000 retail and business banking customers.  

Approximately R54.4 billion in payment relief was extended to corporate and investment banking clients during the year under review. This included interest and/or capital moratoriums, covenant concessions and extensions of maturity dates on expiring facilities.

Absa also mobilised its citizenship programme to support communities across presence markets. Absa and its employees directed R83 million towards COVID-19 response initiatives across the continent.

Financial performance

While credit impairments had a substantial negative impact on earnings, Absa Group’s 2020 financial results indicated positive underlying trends, including a 2% increase in income and strong growth in pre-prevision profit. (Pre-provision profit is profit before setting aside funds for impairments.)

Net interest income growth of 5% stands out, considering large policy rate cuts that reduced Absa’s net interest income in South Africa. However, Absa’s structural hedge released R2.6 billion to the profit and loss statement to partially offset this.

Operating expenses remained well-managed, declining 2%.

Combining resilient revenue growth with lower costs produced positive operating JAWS – a measure of efficiency – of 3%, improving cost-to-income ratio noticeably to 56%.

“I was really pleased with our 7% rise in pre-provision profit as this is an important indicator of positive underlying performance. I believe that we have appropriately prioritised balance sheet strength balanced against selective targeted growth during these uncertain times,” said Jason Quinn, Absa Group Financial Director.

Pre-provision profit growth was evident across Absa Group’s three business units.

Retail and Business Banking South Africa (RBB SA)

While RBB SA’s earnings declined 55%, strong pre-provision profit growth of 6% largely cushioned the business against an increase in impairments.

In a challenging and uncertain period, RBB SA actively supported customers through relief measures including financial advice, proactive customer and community outreach programmes and the provision of comprehensive payment relief.

Many customers signed up for the payment relief programme as a precaution, and by December, the outstanding exposure of loans deferred had reduced significantly as customers resumed payments. A combination of these support programmes, strong equity in mortgages and elevated savings rates, along with a resilient balance sheet, place the business on firm footing as it navigates the next phase of its strategy journey.

At the same time, RBB SA continues to invest, particularly in digital to improve operating efficiencies and the overall customer experience. This is illustrated by a 23% increase in digitally active customers to 1.9 million, largely driven by the mobile app. The app has been consistently the highest-ranking in the market.

Underpinning RBB SA’s performance has been the deliberate decisions taken in 2018 when its transformation journey commenced.

              Corporate and Investment Banking (CIB)

CIB’s headline earnings declined by 17% as impairments increased six-fold. Pre-provision profit increased by 22%, supported by income growth of 14%, with all core operating business units delivering solid revenue growth.

CIB’s completion of separation from Barclays, which involved 44 projects, was a significant milestone, freeing up management time and facilitating the introduction of newer systems.

CIB successfully integrated the custody and trustee business (Absa Investor Services) which was acquired from Société Générale. The US office became operational with all regulatory approvals and licenses secured.

              Absa Regional Operations (ARO)

ARO earnings declined 56%, or 65% in constant currency. Pre-provision profit grew 3% as ARO continued to benefit from its well-diversified portfolio, both by activity and geography.

Completing its separation from Barclays was a significant event for ARO, most of which Absa acquired from Barclays in 2013. It included the largest single data and systems migration in Africa, as customers in nine countries were switched to a new, enhanced online banking system. It also involved a major rebranding of branches and corporate offices, ATMs, point-of-sale terminals, and over 1.2 million customer cards.

Strategy

Absa undertook an in-depth review of the group strategy in 2020, two years after the launch of the 2018 growth strategy, to evaluate execution progress, and to assess relevance given the changes in the operating environment.

“The review process concluded that, while our strategic choices from the 2018 strategy remain relevant, the world in which we seek to achieve them has changed,” said Mminele. “As a consequence, some shifts and accelerations are required to drive the modernisation our business, not only to maintain relevance but to thrive and advance as a business.”

Absa’s refreshed strategy addresses the implications of the evolving operating environment, and will accelerate the growth of the business, as the Group continues to execute and consolidate elements of the 2018 strategy that have been showing traction. Absa will refine its go-to-market approach and execute with agility and speed, keeping the customer at the heart of everything we do.

Strategic shifts are required to ensure that Absa delivers deeper shared value to a broad range of stakeholders, strengthening the Group’s position as a purpose-led organisation. Absa will become even more customer-centric in meeting the specific needs of clients, embrace digital-first distribution channels to match customers’ changing behavioural patterns, and diversify market reach to match customers’ points of presence. 

Areas targeted for acceleration include:

•          Developing and nurturing a more entrepreneurial culture
•          Creating more competitive digital, data, technology and innovation capabilities
•          Leveraging strategic partnerships to create market leading capabilities

To deliver against our refreshed strategy, Absa will invest in strategic capabilities including leadership, a more modernised technology architecture that powers digital transformation and in creating an execution model that promotes faster innovation.

“The Group has delivered respectable progress over the last two-and-half years against the strategy journey that was adopted in 2018, and we have seen good traction in some parts of the business. Our refreshed strategy enables us to become more precise in expressing how we want to embed customer-centricity at the heart of our business, how we will evolve our digital maturity, and what it means to be purpose-led,” said Mminele.

Outlook

There remains substantial uncertainty regarding the global economic recovery, which depends on the roll-out of effective vaccines and additional policy support. However, Absa expects an improved macro-economic backdrop in 2021, which should support financial performance.  

Absa forecasts 3.1% growth in South Africa during 2021 and expects GDP to only recover to 2019 levels by 2024. Absa expects the economy in ARO presence countries to rebound in 2021, with GDP-weighted growth of 4.5%.

“While there is some way to go before economies stabilise, the roll-out of vaccines globally hold the promise of greater stability and we look forward to playing our role in the recovery and re-setting for the future,” said Mminele.

It is with profound sadness that the Absa Group announces the passing of our Executive Director and Deputy Group Chief Executive, Peter Matlare, on 7 March 2021 due to COVID-19-related complications.

Peter joined the Absa Group Limited board as an independent Non-Executive Director in 2011. In August 2016, he was appointed Group Deputy Chief Executive Officer, as well as Chief Executive responsible for Absa Regional Operations, covering our presence on the continent outside of South Africa.

“He played a key role in overseeing our regional operations and safely leading our banks through the major separation from Barclays and rebrand to Absa,” Wendy Lucas-Bull, Absa Group Limited Chairman said.

Peter has made a significant contribution to the Group, and Absa has lost a dedicated leader, a visionary and an amazing human being. More recently, Peter’s leadership was critical in ensuring that the separation from Barclays, a complex multi-year project which also included the largest single data and systems migration in Africa, was successful across Absa’s operations on the continent.

“Peter was a seasoned corporate executive, a good leader, inspirational, and passionate about his work, always strongly invested in the success of our continent. I will miss his friendship, collegiality, guidance and wise counsel,” said Daniel Mminele, Absa Group Chief Executive.

The seasonally adjusted Absa Purchasing Managers Index (PMI) increased to 53 index points in February from 50.9 in the month before. The further increase was supported by three of the five subcomponents gaining relative to January. Only the employment index moved lower, while the supplier deliveries index also ticked down but remained well above the neutral 50-point mark and thus supported the headline figure.

The most encouraging outcome of the February survey was a continued improvement in new sales orders. Following a rise in January, the index rose further to 54.0 index points, which is the best level since October 2020. The improvement was supported by better export sales relative to the previous month, while the loosening of local lockdown restrictions also contributed to an uptick in domestic demand. The improvement in orders supported an increase in the business activity index. Following four consecutive declines, the activity index rose by a sizeable 8.6 index points in February. The increase suggests that production growth reaccelerated after losing steam towards the end of last year. The inventories index also regained all of January’s losses and moved back above the neutral 50-point mark.

Purchasing managers remain relatively optimistic about the six-month outlook, with the expectations index unchanged at 59.2 index points. A factor which may quell sentiment going forward could be continued upward pressure on costs. This is likely, especially if the demand environment remains relatively weak and producers cannot pass on these costs to mitigate some pressure on profitability. Indeed, after a sharp increase the previous month, the purchasing price index rose further. A hefty fuel price increase at the start of February likely contributed to the continued acceleration in cost pressure. Fuel prices are expected to rise further in coming months on the back of a higher Brent crude oil price as well as an increase in fuel levies. A sharp hike in electricity tariffs will also push up costs.

• PMI February Infographic 2021
• Absa Purchasing Managers Index February 2021

Absa Group today pledged R10 million to the newly-established Gender-Based Violence and Femicide (GBVF) Private Sector Response Fund, and will also provide free banking services to the fund for 12 months.

Launched by President Cyril Ramaphosa, the Fund seeks to bring together all sectors of society and will serve as a vehicle to mobilise resources to support and enable scalable programmes, targeting both prevention and response to GBVF across South Africa.

“Gender-based violence does not only hurt its direct victims, but society as a whole. At Absa we recognise that as a large organisation it touches the lives of people from all walks of life, and we have a responsibility to play a shaping role in our society,” said Absa Group Chief Executive Officer Daniel Mminele.

Absa will also provide further support to the fund in the form of:

• Project management capacity for the establishment of the Fund;
• Designing and setting up a website and basic marketing activities and;
• Developing a donation and disbursement process – in conjunction with the administrator.

“Gender-based violence is not just a law enforcement problem, but a problem for all of society that demands everyone to respond meaningfully and consistently in order for women and girls to be safe at all times” Mminele said.

Absa’s pledge to the GBVF Response Fund builds on various initiatives undertaken in 2019 and 2020. Some of the initiatives have included signing up to the UN’s HeforShe programme, working with men in communities and within Absa to break the cycle of violence, hosting a number of dialogues around gender-based violence, and collaborating with various institutions to ensure a portion of public procurement spend is earmarked for women-owned businesses.

Absa’s pledge will contribute towards changing social norms and behaviour, as well as broadening access to justice for victims.

Absa Group has been selected to serve on the Payment Card Industry Security Standards Council’s (PCI SSC’s) Board of Advisors in 2021 and 2022. In this role, Absa is able to help shape the development of payment data security standards and programmes globally.

The PCI SSC leads a global, cross-industry effort to increase payment security by providing industry-driven data security standards and programmes that help businesses detect, mitigate and prevent cyberattacks and breaches. Absa Group Chief Security Officer Sandro Bucchianeri will represent Absa on the board for the third consecutive year.

Absa is one of 31 board members, alongside Google, Apple, Amazon and the European Card Payment Association among other organisations. As strategic partners, board members bring industry, geographical and technical insight to PCI SSC plans and projects.

“The Board of Advisors provides industry expertise and perspectives that influence and shape the development of PCI Security Standards and programmes. We look forward to working with Absa in our efforts to help organizations secure payment data globally,” said PCI SSC Executive Director Lance J. Johnson

Separation technology programme receives high commendation in “Best Tech Overhaul” category

Absa Group, one of Africa’s largest financial services providers, won first place in the ’Fintech for Good’ category at the 2020 Banking Tech Awards ceremony yesterday, in recognition of its South African-based Cybersecurity Academy initiative.

Absa’s technology separation from Barclay’s PLC, which included the single largest data and system migration in Africa, received a high commendation in the ’Best Tech Overhaul’ category. The awards programme, hosted by FinTech Futures, a UK-based digital publishing platform, recognises excellence and innovation in the use of IT in financial services worldwide, as well as the people who make it happen.

The Absa Cybersecurity Academy, established in partnership with the Maharishi Institute, provides cybersecurity training for marginalised youth in Johannesburg and Cape Town, with the aim of securing work placements with affiliated organisations.

Says Sandro Bucchianeri, Group Chief Security Officer at Absa, “Since a young age, I have been incredibly passionate about security. COVID-19 has shown us more than ever how important it is, and addressing the global shortage of cybersecurity professionals is an urgent challenge. Absa’s Cybersecurity Academy means a great deal to me; it contributes to the efforts to break the cycle of poverty and build the resilience of organisations across the country.”

To find out more about the Absa Cybersecurity Academy, watch the video here.
For more about the technology separation programme, watch the video here.

Absa advises that an employee has unlawfully made selected customer data available to a small number of external parties. The leaked data relates to a small portion of Absa South Africa’s customer base to date, although investigations continue.

Upon discovering the contravention, Absa secured High Court orders that enabled search and seizure operations at various premises and secured all devices containing the data. The data on these devices was subsequently destroyed.

Absa has enhanced the monitoring of customer accounts that have been affected to date, and we will contact customers directly.

Absa has brought criminal charges against the employee, and internally the requisite consequence management has been undertaken. Absa may take further action in relation to the recipients of the data once the full scope of the leak is identified and all investigations are completed.

Absa has put in place additional control measures to minimize the risk of reoccurrence in future.

The Absa Purchasing Managers’ Index (PMI) (link to attached PMI Report – November 2020.pdf) declined to 52.6 index points in November from the solid 60.9 points recorded in October. The decline comes after three consecutive upward moves and brings the index to the lowest level since July 2020. While still signalling an improvement in business conditions, the drop suggests that the manufacturing sector’s recovery is starting to lose momentum. This was to be expected as output levels for many subsectors are nearing pre-pandemic levels and will need sustained demand growth to fuel a further output expansion. In this regard, it was worrying to see the new sales orders index dip back below the neutral 50-point mark for the first time since May. This was in part driven by a renewed decline in export sales, which could possibly be linked to lower activity in Europe due to the renewed COVID-19 lockdowns. This, as well as concerns about coronavirus developments in South Africa, likely explains why purchasing managers turned less positive about business conditions going forward. The indicator tracking business conditions in six months’ time dipped for a second month to 52.7 index points and is now about 12 points below the level of just two months ago. While positive news regarding vaccine developments may result in an improved global growth outlook over the medium term, the next six months remain highly uncertain. 

In addition to the new sales orders index, the other four components of the headline PMI also declined relative to October. However, encouragingly, both business activity and inventories still signalled expansion. Even so, the fact that both indices fell by about 10 points suggests that the pace of the recovery has slowed significantly. Furthermore, the employment index dipped lower in November. Unlike the other indices, employment never breached the neutral 50-point mark in its recovery from the lockdown-induced slump in April. The supplier deliveries index remained high in November, suggesting that supply chain and product availability are still constraints.

Finally, the purchasing price index came down from a two-year high reached in October. The deceleration in cost pressure was likely driven by the, on average, stronger rand exchange rate which lowers the rand-cost of imported raw materials and intermediate goods.

Please note that the December 2020 PMI will be released on 8 January 2021. Due to the December holidays, we don’t release it on the first working day of the month as usual.

• Absa PMI November 2020
• PMI November Infographic 2020

Absa Group Financial Director Jason Quinn was named CFO of the Year at the 2020 CFO Awards on 25 November.

Jason won three of the ten awards, including the ‘Strategy Execution Award’ and the ‘Moving into Africa Award’ at the annual event, known as the ‘Oscars for finance executives’.

The awards programme, in its seventh edition this year, is organised by CFO South Africa, an organisation that connects finance professionals through executive events.

Jason was recognised for his instrumental role in the separation of Absa from Barclays, a three-year, multibillion-rand programme, which was completed on time and below budget during 2020. The awards also recognise his role in Absa’s expansion and in dealing with substantial changes in the business environment.

“I congratulate Jason for his excellent achievement and well-deserved recognition. We are truly proud to have someone of his calibre as part of the Absa family and our leadership,” said Daniel Mminele, Absa Group Chief Executive.

Jason joined Absa in 2008 as financial controller and he was appointed as head of finance in 2014 after holding several senior finance positions. He joined the Absa Group board and executive committee as group financial director in 2016.

Absa Group has won an award from the Institute of Risk Management South Africa (IRMSA) for the best Industry Specific Risk Initiative (financial category) in response to the COVID-19 pandemic. Absa also received the South African Publication Forum Award for the best COVID-19 Intervention in relation to its corporate communications strategy.

The awards recognise Absa’s efforts in ensuring that the group continued to service customers across Africa daily, while adjusting to fast-moving government regulations in multiple countries and, at the same time, implementing substantial operational changes to enable more than 20,000 staff members to work from home across 14 countries.

Employee communication was key to effecting large-scale changes efficiently, and focused on three key themes: mental and physical wellbeing; resilience and security; and, new policies and procedures.

“The accolades bear testimony to the hard work and dedication of all our colleagues across the bank who have worked tirelessly – and continue to do so – to keep colleagues, customers, and communities safe during the pandemic while ensuring continued operational and financial resilience of our organisation” said Daniel Mminele, Absa Group Chief Executive.

The response to the pandemic required collaboration and execution between all parts of the organisation in ways not seen before. By invoking response structures early, Absa was able to anticipate and avoid some of the impact felt in other organisations.

From the very early stages of the COVID-19 pandemic, Absa created an integrated ‘war room’ to manage the response. The war room consisted of a multi-disciplinary team from across the entire group. The war room later became the Absa COVID-19 Advisory Board and consisted of members from the corporate real estate, physical security, wellness and people function, communications, compliance, legal, risk, finance, technology, audit and customer facing business units. 

The latest awards follow earlier recognition in a MyBroadband survey in June in relation to the CEOs’ response to COVID-19. Absa also received an award for Excellence in Leadership in Africa from Euromoney in July for its integrated COVID-19 response in terms for people, clients, and communities. Absa was one of six banks globally that were recognised for outstanding performance during an unprecedented era of constant change and uncertainty as a result of the global health crisis. 

In September, Absa was the recipient of the Business Continuity Institute Africa Award for the Most Effective Recovery, recognising the resilience it demonstrated in the face of the impact of the COVID-19 crisis.

“A huge amount of work has been done by many to ensure that, as a critical service, we were able to continue to serve and support our customers through this crisis in a sustainable way,” said Mminele.