FIFI PETERS: Absa is the second of the big five banks to report annual financial results. Like Nedbank last week, Absa reported higher profits [on Monday] and also more than doubled its annual dividend to 6.50 rand per share.
We have the CEO, Ari Rautenbach, who started his job in March this year, in Market Update to learn more about the group’s numbers.
Arry, thank you very much for your time. I see you’ve been in the CEO position for about three months as I take it at the end of the year, the end of June. How are things going?
ARY RAUTENBACH: Fifi, thank you very much. If we take until the end of June, then it is three months, or, let’s say, the first 100 days. When I look at the results that we’ve put out in the market, I have to say that I feel very good about where we are as an organization – our position in the market and the results that we’ve put out. So, as an organization, we’re very proud of these numbers, and as the new CEO, I’m especially proud to be able to share these numbers on behalf of our 35,000 colleagues with the market.
FIFI PETERS: What we’ve seen during the pandemic is that banks have been very cautious, given the uncertainty in their environment, and they’ve been drawing down these huge reserves that are now coming back into your statements and now filtering into earnings. Then I would like to understand if we look at your Heps growth of 27%. [headline earnings per share]how much of this is the result of returning previous resources to the system and how much of it is the result of a sustainable economy?
ARY RAUTENBACH: Fifi, I think it’s very important when you look at our results that you realize that the numbers that we just announced to the market are actually a factor in the decisions that we’ve made over a long period of time.
We have reported growth in operating profit before provisions for several years. And if you look at operating income before provisioning is up about 23%, if I get the numbers right, you’ll see that our performance comes from underlying growth. If you look at the underlying growth, [there is] very strong revenue momentum that we’re seeing.
So I think the decisions we’ve made over the years to set up our organization for growth and growth in the right areas are very important for us. [is] starting to pay off very well for us, in addition to the customer-centric choices we’ve made throughout the pandemic. So, a very good sense of the fundamentals, too, on the back of strong growth.
Fifi, this growth program is important to us for the future. So we’ll certainly be talking about that a lot more in the next horizon.
FIFI PETERS: It sounds like the retail side of the business is doing a lot better than your corporate client. Perhaps you can break down for us the relevant clients and how you describe their current state. What is the state of Absa’s retail banking consumer and how does it differ from that of the corporate banking consumer?
ARY RAUTENBACH: Fifi, thank you so much for this 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 acquiring new customers. What we are particularly encouraged by are the segments we are facing in this environment. If you look at the loss figures we’ve seen in the first half of this year, [they are] extremely low.
So that business continues to be in a very good position and our customers are very, very resilient, in fact, with enough capacity to invest when the right opportunities arise.
If you look at our business banking environment, we are very strong at the top end of business banking, very strong in the agricultural environment. Again, we’ve seen very consistent performance there, [we’re] very close to those customers and again what we have there speaks to a pretty solid base.
If you look at our retail businesses, there’s a very strong rebound in the recovery from COVID. We’ve been clear that we want to regain market share over time in all of these businesses, and if you look at our market share now from the lending side, across all of our businesses, [that’s] sitting at 22% on the liability side which is the deposit side is also sitting at 22%. So I think we’re very confident that our customers have demonstrated resilience so far.
Of course, we are constantly thinking about the macro environment and what it means for our consumers. We’ve been very aware of that for the last 12 months or so. And when we think about risk appetite in that environment and the environment that we’re in, Fifi, we’re starting to emphasize that, especially around affordability as part of our lending approaches.
So if we look at the risk appetite in our businesses, we haven’t made any significant reductions or risk appetites yet. We don’t see any trouble yet that would make us start doing that. But of course we will remain very close to the macro environment, and if we think there are reasons to start doing that, [if] if we start to see early problems, we will take necessary action.
FIFI PETERS: Sir, one last quick graylist question. Everyone is talking about it now. How concerned are you about that, and if South Africa is put on that list, do you think your money laundering and terrorist financing controls are at zero now?
ARY RAUTENBACH: Fifi, thank you very much. Obviously, this is an area that we are very focused on and very concerned about.
It’s also an area where you obviously understand that we have to operate not as an individual bank – as Absa, to your question, obviously we’re very confident about our own controls and processes – but also as a banking sector. And of course we work with National Treasury as well as law enforcement because it’s a collective effort across the value chain.
The first reward for us is that we do not end up on this gray list. However, if we end up in this gray list, we have to continue to work hard in all of these areas that I mentioned to try to get out of this situation as quickly as possible, because in the long term, this is simply not a position that we want to be in. , for South Africa to be because it speaks to our competitiveness at global level. And especially when moods start to change, that’s not a position we want to be in.
FIFI PETERS: is correct. That’s when we’ll leave it at that. It was Ari Rautenbach, CEO of Absa.