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.

Absa Group has announced that it will support entrepreneurship through its partial funding of the 1000 Tech Entrepreneurs Programme, assisting aspiring South African entrepreneurs in creating innovative technology businesses. The programme, undertaken by technology ecosystem Silicon Durbs, provides a structure in which entrepreneurs learn how to start and grow their businesses while identifying and solving industry and real-world challenges.

Andrew Davies, Digital Partnerships Ecosystem Lead at Absa Group, says that unemployment statistics highlight the importance of initiatives like that of the 1000 Tech Entrepreneurs Programme. “This year has shown us more than ever that large corporates should be supporting entrepreneurial ventures in order to create employment opportunities. Added to this, it is the fresh and innovative thinking of technology entrepreneurs that gives rise to the type of startups that solve real-world problems.”

Lindani Mkhize, founder of Silicon Durbs and campaign lead for the 1000 Tech Entrepreneurs Programme, says that they are on track to discover the next wave of South African tech entrepreneurs and businesses. “We’re hoping to stimulate a culture of technology entrepreneurship that can be copied in other African markets and prestigious supporters like Absa help us to bring this dream to life, while creating an ecosystem with stakeholders that are willing to collaborate, partner and support each other.”

Absa currently works with over 40 entrepreneurs through its innovative WorkInProgress ecosystem which supports and connects technology start-ups with potential development and growth partners.

Absa is supporting phase two of the 1000 Tech Entrepreneurs Programme which consists of ideation bootcamps, running from November 2020 until March 2021, focusing on connecting industry challenges with participating entrepreneurs. This stage involves those entrepreneurs that don’t necessarily have an initial idea, but rather just an interest in developing tech business solutions for particular industries. The five-day boot camps are hosted in different locations around South Africa and consist of value proposition design, product engineering sessions, brand development sessions, general sales skills, networking and pitching.

The 1000 Tech Entrepreneurs Programme is open to all South Africans and previous entrepreneurship experience is not a requirement.   Registration for the programme can be done online: https://1000techstartups.co.za.

Absa Group Limited’s cybersecurity team was named the ‘Not for Profit Team of the Year’ at the 2020 Cyber Security Awards on Thursday, 10 September 2020.

The award was made in recognition of Absa’s role in the Absa Cybersecurity Academy, a collaboration with the Maharishi Institute, that provides marginalised youth with the opportunity to become certified cybersecurity specialists. The Johannesburg-based academy was expanded in August with the launch of a Cape Town leg.

Absa’s Group Chief Security Officer, Sandro Bucchianeri, was ‘highly commended’ in the cybersecurity industry ‘Personality of the Year’ category, which recognises efforts to promote the sector.

Established in 2014, the Cyber Security Awards programme, organised by the eponymous company, recognises top performers in the cybersecurity sector. Founder Karla Reffold, currently a director at UK and US cybersecurity recruitment business BeecherMadden, was among the judges.

“Cybersecurity has evolved rapidly into one of the most important areas in the banking sector. Absa therefore considers it as critical that we have top resources looking after this area,” said Paul O’Flaherty, Absa Group Chief Executive: Engineering Services. “We are proud that our team’s efforts within the company, and in being a force for good, are being recognised.”

“As a CSO, one dreams of leading a phenomenal team and being recognised in an international awards programme,” said Bucchianeri. “I’m exceptionally proud of my team, and we look forward to doing more to support the development of the industry while uplifting the communities in which Absa operates.”

The Absa Purchasing Managers’ Index (PMI) posted a robust increase to 57.3 index points in August, up from 51.2 in July. This points to a further improvement in conditions in the manufacturing sector as South Africa’s COVID-19 lockdown restrictions eased further to Level 2 in August. As a result, both business activity and new sales orders rose in August. The improvement in demand was not only due to South Africa moving to a lower lockdown level, but was also supported by an uptick in export orders.

Crucially, while the level of the PMI is now well above pre-pandemic levels, this is unlikely to be the case when the actual manufacturing activity data for August is released later. The performance of the PMI during lockdown has shown that the level of the headline index is arguably less informative than the month-on-month movements. This is both in terms of the direction (up or down) and the magnitude of the monthly change. Actual manufacturing activity (production) crashed in April, but subsequently recorded strong monthly increases in May and June as foretold by the uptick in the PMI’s activity index in those months. The PMI suggests that the recovery stalled in July, but likely found renewed momentum in August. Given the magnitude of the drop recorded in April, and the continued restrictions placed on the manufacturing sector until recently, as well as social distancing measures possibly still preventing many factories from returning to full capacity currently, it will take months of strong month-on-month growth to return to the actual level of activity recorded prior to the start of the nationwide lockdown in late March.

Production levels in some subsectors may indeed be back (or even exceed pre-COVID levels) in August, but overall activity is likely to still be lower. Indeed, while activity and demand are clearly recovering from extremely low levels, the employment index remains significantly more subdued. This also underscores the point that the uptick in activity is not resulting in output that exceeds current production capacity. The inventories and employment indices continue to be the main drag on the headline PMI. 

Despite the level of the PMI more than likely overstating the extent of the recovery, the renewed increase in the PMI in August is encouraging, especially as it seems to be supported by both local and export demand improving. Furthermore, purchasing managers have turned notably more optimistic about future business conditions. The index tracking expected business conditions in six months’ time rose to the highest level in about 18 months. 

• Absa PMI August 2020
• PMI August Infographic 2020

• Salient points: 

• Revenue increased 3% to R40.1 billion 
• Operating costs fell 2% to R21.6 billion
• Cost-to-income ratio improved to 53.9% from 56.7%
• Pre-provision profit increased 9% to R18.5 billion
• Impairments increased four-fold to R14.7 billion
• Headline earnings declined 82% to R1.46 billion
• Return on equity declined to 2.6% from 16.4%
• Group CET 1 ratio of 11%, well above regulatory requirements
• Zero dividend declared 

*Note: normalised values (stripping out the effect of the separation from Barclays PLC)

Absa Group Ltd. today reported an 82% decline in normalised interim earnings after impairments increased four-fold to R14.7 billion. Impairment charges rose as customers and clients struggled to repay debt and as the Group took decisive action to increase impairment provisions against future potential credit losses.

Despite significantly higher credit impairments and the material impact of the lockdowns on transactional volumes, the Group, including all business units, remained profitable. The Group expects a continued difficult environment for the consumer and heightened uncertainty is expected to dampen business confidence and investment in the remainder of 2020.

“In the current economic climate, ensuring continued operational and financial resilience is paramount. We are therefore temporarily holding our growth ambitions in abeyance to focus on cost management and capital and liquidity preservation, while continuing to support customers,” said Daniel Mminele, Absa Group Chief Executive.

Absa extended significant support to customers and clients across its operating markets. In South Africa, the Group’s largest market, Absa implemented a comprehensive payment relief plan. Measures included credit payment relief, insurance premium relief, the temporary expansion of the Credit Life product to cover a wider definition of loss of income, the waiving of Saswitch fees, and supporting the distribution of social grants and pension payments.

As at 30 June, Absa had provided R8.7 billion of relief on R154 billion worth of loans to 538 000 customers, including 20 000 businesses in South Africa.

Corporate and Investment Banking South Africa assisted clients on a one-to-one basis and granted payment relief on R37 billion of loans, 12% of their book.

Absa Regional Operations afforded customers payment relief on loans totaling R25 billion.

In line with Absa’s commitment to be a force for good in the communities that we operate in, we mobilised our citizenship programme as COVID-19 quickly evolved into a humanitarian crisis. Absa and its employees contributed over R71 million in support across the continent, contributing towards screening and testing, the provision of personal protective equipment for thousands of health workers and humanitarian support to vulnerable communities in the Southern, East and West African countries.    

While the negative impact of the crisis on Absa’s earnings is clear, the interim results also highlight the resilience of the business.

“Our revenue remained resilient and our operating costs were well managed and responded to the crisis, resulting in encouraging pre-provision profit growth of 9%,” said Absa Group Financial Director Jason Quinn. “Our capital and liquidity levels are strong and will allow us to further support our customers as we emerge from the crisis,” he said.

Absa continued to deliver against major business imperatives during the period, achieving substantial separation from Barclays and completing the process of renaming and rebranding its operations in 12 countries. The separation has fundamentally improved Absa’s resilience, systems and capabilities, to the benefit of staff and customers.

Business unit performance

Retail and Business Banking South Africa (RBB SA)

RBB SA, the largest of the Group’s three business units by revenue, started the year in a strong position, building on the momentum from 2019 from the execution of its transformation journey. The benefits of improved momentum and the quality of the client franchise was evident in pre-provision profits which increased by 10% on the prior year. Credit impairments increased significantly as balance sheet resilience was built given the challenging macro backdrop for borrowers.

Despite the macroeconomic challenges presented by COVID-19, RBB’s performance remained resilient compared to the market in a number of areas:

• Home loans registrations were down 31% while the market contracted by 39%
• Vehicle and asset financing decreased 19% in a market that shrunk by 42%
• Retail deposits grew 12%, in line with the market
• Solid net insurance premium growth of 9%

The Absa app has been the highest rated banking app since its launch in 2013. Digitally active customers grew by 12% in the period since December 2019.

Corporate and Investment Banking (CIB)

CIB was the Group’s largest profit generator in the period following strong growth from the global markets business across the continent. Pre-provision profits increased by 24% supported by broad-based revenue growth and cost containment actions. Credit impairments increased seven-fold as the group provided for customers in sectors most exposed to the crisis.

Notable business highlights during the period included the successful separation from Barclays PLC, the successful integration of Absa Investor Services, the Custody and Trustee business acquired from Societe Generale bringing over R100 billion of assets under custody, as well as the operational go-live of the Group’s representative office in New York.

Absa Regional Operations (ARO)

ARO, which comprises the operations in Africa outside of South Africa, continued to show strong top-line growth during the period and now contributes 26% of Group revenue.  These operations provide the footprint to support customers across the continent and provides diversification to the Group’s exposure.

Similar to the rest of the business, ARO was adversely affected by the crisis, manifesting as a five-fold increase to impairments. Despite this, the business remained profitable and contributed positively to Group earnings.

ARO highlights during the period included the successful completion of separation, specifically the brand and name change and migration of banking platforms and applications, as well as a notable increase in digital customer activity. The number of digitally active customers in the retail and business banking business grew by 28%, resulting in digital transactional volumes rising 77%.

Outlook

While uncertainty remains high, the Group is well-positioned with a strong capital and liquidity position allowing it to continue to support its customers. With the decisive actions that have been taken in the first half to improve balance sheet resilience, the Group expects the second-half impairment outcome and returns to improve.