Wednesday, 24 July 2024

Absa Bank infused a new sense of ownership and growth after split with Barclays group

5 min read

By Chris Kapfer

Despite fierce competition from its local South African peers and some Nigerian banks, Absa emerged as the Best Retail Bank in Africa

Absa Bank is one of Africa’s largest diversified financial services groups with presence in 12 countries across the continent and around 42,000 total employees. With close to $3 billion in annual retail revenue and 632 branches as of 2019, the bank is the largest retail bank in South Africa having grown its retail deposits by a compounded annual growth rate of 9.6% between 2016 and 2019.

Absa Bank’s newfound sense of ownership and growth

Its historical decision to split from the global Barclays group network in 2018 was equally bold as it was necessary. The bank had gradually been ceding market share to its peers in core retail categories such as credit cards and mortgages and could not optimise its large network size and capital structure in an emerging market. When it set out in 2018 a new business strategy and operating model around entrepreneurial ideas, innovation, ownership and faster implementation, it became less of a capital and cost-driven business rather than a growth business. While sustainable growth to be driven by a transformative culture will not come back overnight, 2019 saw the first glimpse that a mix of newfound ownership, entrepreneurial spirit and innovation could see the beginning of a material impact on its income and balance sheet. The pandemic put a temporary stop to those ambitions, but Absa remains resilient in the current COVID-19 pandemic. In the first half of 2020, 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% but it showed solid net insurance premium growth of 9%.

Shift from sales conversations to focus on client relationships

Focus on the total relationship in client conversations is paramount to integrity and customer loyalty in the long term, although it might not yield immediate results on the income and balance sheet. It also requires a reconfiguration of perspective and behaviour via a new staff compensation structure and continuous training. One of the main initiatives in 2019 on the mass and affluent segment for Absa has been to shift perspectives and focus on relationship and having meaningful conversations rather than having sales conversations. Over several months of interactive training course, group peer-to-peer learning modules and on-the-job coaching, the bank has seen improved metrics on its net promoter score, number of referrals from existing clients, and a significant reduction in customer complaints. Training goals were also reinforced internally by frontline executives who ensured that the same language was being applied at client interactions.

Absa has been setting up its infrastructure for ecosystem growth, albeit the bank is at an early stage in leveraging it for business growth beyond core banking areas. Its application programming interface (API) market place has yielded instalment loan offerings at the merchant point of sales and the bank  is cooperating with a couple of real estate partners to construct a home loan ecosystem.  It replaced part of its legacy channels at the back-end to create a simpler client experience with fewer online channels and migrated its payments platform in Africa into a consolidated offering.

Robust retail deposit growth and uptake in digital user adoption

Absa showed robust retail deposit growth of 12% year on year (YoY) in the first half of 2020, an improvement by 2% compared to its 2019 YoY growth. This was achieved without compromising margin. It also indicates that its transformation strategy to attract deposits and to acquire customers via its network, not just to manage attrition, is gaining momentum. Moving forward, Absa will be more pro-actively pursuing its customers in its important middle and affluent market segments. And to keep up with front-end business goals, Absa is in the process of digitising the business not only at the front-end but end-to-end including its core legacy business.

The bank focused on improving customer experience, while closing in on the top local competitors in net promoter score. Absa’s mobile app has been the highest rated banking app since its launch in 2013 with a 4.6 Android score. Digital user adoption over total retail base stood at 40% in 2019. In the first half of 2020 it further increased its number of digital customers by 12%. The bank also invested in iATM for deposits without envelopes.

Absa also improved customer service in the affluent segment. It was imperative in the course of its overall transformation to review its ‘Premier’ business line, one of Absa’s core customer segment. By shifting from a traditional sales model to a customer service model, it created better client access to the relationship manager and quicker turnaround times for service requests resulting in a higher customer engagement score.

With 80% of sales in the retail financial services industry in South Africa coming from the banks’ branch and agency network, South African banks lag behind other markets (see figure 2). South African banks’ digital sales component could not compensate for a contraction in industry sales during COVID-19. This was also compounded by a lack of full electronic know your customer (eKYC) current account onboarding which impacted overall digital sales levels, though most banks are ready to launch by end 2020/2021. Absa’s digital sale is driven mainly by personal loans and time deposits.

In contrast, digital sales at Garanti Bank Turkey reached 46%. The bank is an affiliate of Banco Bilbao Vizcaya Argentaria (BBVA) global banking conglomerate. It is also the second largest private bank in Turkey with 17.1 million customers and 920 branches. As a world leading bank for mobile banking adoption and usage, 66% of customers use the mobile device for banking, and 49% of its retail customer base regularly use digital channels, driving 96% of non-cash transactions. The bank was able to translate those engagements into a high level of digital sales.

Absa faced fierce competition from peers

Based on a balanced scorecard which takes into account a player’s critical corporate achievements, a sustainable financial performance, the ability to generate core retail deposits, the digital journey and progress in modernising the technology stack, Absa Bank South Africa attained 20 points out of 50 and finished ahead of its peers in the region. Capitec Bank, NedBank, Access Bank Nigeria, and First Rand Bank rounded up the top five.

Absa Bank’s strong brand factor based on its size and ability to gain core retail deposits, its low non-performing loans (NPL) and impairment rates and the traction in its core retail products helped to bolster its scores. Personal loans increased by more than 20% in 2019 partly driven by its front-end digitisation. In addition, the bank regained its number two market position in credit cards and mortgages. 

However, weaknesses in Absa’s financial score compared to Capitec Bank and First Rand in South Africa didn’t allow the bank to win more comprehensively. Its compounded annual growth revenue growth rate (CAGR) between 2016 and 2019, in particular, was in the low single digits compared to 16% CAGR for Capitec and 9% for First Rand. Absa suffered low profitability and higher expense levels in its retail business compared to these two peers resulting in a lower financial performance score. Part of Absa’s higher cost to income ratio was driven by its separation from Barclays but this should normalise going forward. In regards to digital journey, South African banks have yet to deliver a more robust ecosystem and full eKYC framework for current deposit accounts. The decisive factors thus fell on the higher digital active customers of Absa’s peers in South Africa and Nigeria to move ahead. Nigerian banks were also leading the best banks in Africa with their portion of digital sales partially driven by a full eKYC onboarding of customers.  In customer experience, Absa’s best in market Android customer scores for mobile banking and its customer relationship management initiatives supported its score but it still has to close further the gap in its net promoter score for retail financial services to the leading South African peer Nedbank which holds an NPS of +38 in its retail financial services.

Absa ranked 26 out of 28 African banks in BankQuality survey

As part of BankQuality™ Consumer Survey and Rankings, TAB gathered feedback from 3000 consumers in Africa in April 2020 about their experience and satisfaction with their retail banks. The BankQuality™ Consumer Survey assesses consumer perception, attitude and loyalty to financial institutions based on their experience with service, channels, products and COVID-19 support initiatives. Absa was the third most helpful bank during the COVID-19 pandemic in South Africa. It occupied a mid-league position in the overall Africa ranking. Among eight product categories, customers voted Absa Bank as among the least recommended banks in South Africa across the major banks which include Nedbank, Capitec Bank and FirstRand Bank. Its savings account and payments propositions received low scores in particular. The bank has to prove quickly that it can gain a more competitive position in the next 12 months in its channel rankings where it placed at the bottom 25% of all 30 premier banks in Africa across branch banking, internet, mobile and telephone banking, as well as relationship management.

Absa needs to close the gap to its African peers

The re-orientation to a dedicated consumer banking strategy post Barclays exit offers a credible pathway to a sustainable retail banking growth for Absa Bank South Africa. However, it has to prove within the next 12 months that its turnaround can close the gap in critical areas such as financial performance, cost management and net promoter score.

SWOT Analysis


  • Among largest retail financial service players in Africa
  • Ability to attract low cost retail banking deposits
  • Strong wealth management position under its ‘Premier’ segment
  • Android consumer score for mobile banking app
  • Third most helpful bank during COVID-19 pandemic in the BQ Africa ranking
  • Shows resilience in revenue growth during COVID-19 pandemic
  • Robust risk management


  • Financial performance in regards to past revenue growth (2016-2019), low profitability and high cost to income ratio
  • Low net promoter score in retail banking
  • Reasonably high levels of digital engagement have not translated into better digital sales  
  • Early days in building digital ecosystem beyond core banking applications
  • Absa Bank ranked in the lowest quartile (25%) among most categories in the BankQuality Consumer Survey in Africa


  • Pursuing customers in the middle and affluent market segments
  • Realigning risk appetite and capital allocation suited for an emerging market like South Africa


  • Maintaining halo effect to achieve sustainable turnaround
  • Impact on income and balance sheet may take longer than anticipated
  • Prolonged COVID-19 pandemic and economic fallout

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