Absa aims to win back crown
Separation from Barclays opens way for resurgence, says retail CEO
Free from the shackles imposed during its 13-year ownership by Barclays Plc, Absa’s largest operating division by profits is determined to recover market share lost to competitors.
Free from the shackles imposed during its 13-year ownership by Barclays Plc, Absa’s largest operating division by profits is determined to recover market share lost to competitors.
While the acquisition of Absa by Barclays in 2005 was at the time fêted as a massive vote of confidence in the country, the operational constraints imposed by the parent led to the loss in market leadership in home loans and credit cards to rivals such as Standard Bank, the country’s biggest lender.
“With Barclays not being the majority shareholder anymore, the focus has now shifted strongly to growth with the right returns. We want to be the leading retail and business banking franchise in the country, and we believe we have the strength to do so,” says Arrie Rautenbach, CEO of Absa’s retail and business bank in an exclusive interview with Business Day.
The unit dwarfs Absa’s three other operating divisions and accounted for over half of headline earnings for the six months ending June 2018. Its offering includes a range of products and channels including home loans, transactional banking for consumers and businesses, and vehicle and asset finance delivered via its physical (branches, ATMs) and digital channels.
For Rautenbach, the separation was a fundamental point of departure that was more about decision-making returning to executives on the ground.
“The narrative was that Barclays was constraining us on the risk appetite side. But after the announcement of the separation, the real constraint was in the operating model and the culture that sat behind that operating model. Now people in the businesses have real authority to make decisions and drive their own processes,” he says.
To effect a pervasive cultural change, Rautenbach began by overhauling the leadership. Members of the executive committee each have on average 14 years’ experience with the bank and comprise a group of executives in their mid-forties, capable of providing continuity to the strategy “through the cycle”.
The remuneration structure has been altered to better align executive performance with the division’s goals.
The plan is to begin winning the battle for market share in lending and the mortgage business. “Our first objective is begin winning the majority of new business. Market leadership in home loans is our DNA; it’s a core product for us and an ‘emotional’ buy for the client,” says Rautenbach.
Competing in lending is the first leg of what he deems a “virtuous cycle”. It begins with Absa’s renewed vigour to compete in lending product lines, which gives the bank the ability to compete for the transactional requirements of the customer, which ultimately leads to the build-up of deposits.
Rautenbach thinks the strategy is shielded to a degree from the entry of new competitors.
“We think the newest competitors are all going to play in a very specific part of the market, in the capital-light transactional banking market. We don’t think they are going to compete in the capital-intensive part of the market that is so vital to helping the customer through their various life stages,” he said.