The dazzling performance by South African banking group Absa for the year to the end of March which saw the group boost headline profits by more than 80% shows that it has fully recovered from the UniFer debacle which seriously dented the country’s banking industry.
Monday’s exuberance, fueled by a handsome profit of R3,4-billion, was a far cry from this time last year when the group was still reeling from the R2,2-billion losses suffered by its microlending subsidiary UniFer as a result of gross mismanagement.
The scandal cost the group almost R1,78-billion, seeing profits last year almost halved at R1,9-billion. But the group — one of the country’s so-called “big four” — believes the remedial steps it took at the time coupled with its resilience and focus on its core capabilities has enabled it to recover from the disappointment.
“The group’s resilience and the quality of its earnings streams are demonstrated by the group’s complete recovery from the disappointment we suffered because of the losses at UniFer last year,” Absa chairman Dr Danie Cronjé said on Monday.
He said a significant portion of the group’s earnings was generated from services offered to the consumer market.
“Although consumer spending and the appetite for credit declined somewhat during the second half of the financial year, there was still enough demand to grow advances and earnings,” he added.
Over the 12-month period, the group managed to improve its market share in mortgages, instalment finance, credit cards and overdrafts and other loans, saying that customer acquisition, specific advertising campaigns and improved customer service had made it all possible.
Commercial banking showed good advances growth of 11,9%, which performance was primarily driven by growth in Bankfin’s advances. Corporate credit demand, however, remained depressed, leading to intense competition for quality customers.
But wholesale advances increased by 1,9%. “The group experienced moderate growth in its net interest income despite lower corporate advances growth and a decline in the net interest margin.
“Competition and the commoditisation of consumer lending products continued to exert pressure on lending rates. Growth in personal and commercial deposits benefited substantially from specific marketing campaigns, investor concerns about alternative options and the difficulties second tier banks experienced last year,” Bosman said.
Non-interest income, however, increased by 18,6%, enabling the group to increase the contribution of non-interest income as a percentage of total income to 50,8%.
Growth in annuity-type non-interest income also held its own and constitutes two thirds of the total non-interest income in this category. Growth in commissions and fees was supported by an increase in customers, transaction volumes and the annual pricing review. – I-Net Bridge