Why you can’t blame Maria Ramos for all of Absa’s problems

Blame for the dozens of considerable challenges being faced by Absa is increasingly being placed by analysts and commentators on Maria Ramos and her peculiar exit. An editorial in Business Day earlier this month titled ‘Rudderless Absa afloat in fiercely competitive market’ rather breathlessly declared that “Absa can ill-afford to be rudderless in such a highly competitive scene”.

That there was no clear successor and evidently no succession plan is an indictment of the board. This we know. In February, I argued that “To describe the succession plan at Absa Group as ‘botched’ would be kind. In truth, there wasn’t one.”

Chairperson Wendy Lucas-Bull can offer every excuse in the book, as she did at the group’s AGM at the start of June, but the board remains to blame.

Of course, philosophically – and technically – Ramos is to blame for many of Absa’s woes. Until the end of February, the buck stopped with her.

The disastrous deal in 2012 to purchase Edcon’s store card portfolio was hers. Customer numbers cratered in the decade she was in charge, a situation that became so awkward that the bank simply stopped disclosing them altogether.

An analysis by this author in March shows just how poorly Absa compares with Standard Bank when it comes to advances growth over eight years since Ramos was appointed CEO (2009 to 2017). Standard Bank grew its book three-and-a-half times higher more than Absa.

Its lending taps were practically shut; only a few will know the extent to which Barclays plc hindered Absa in the decade that it was majority (controlling) shareholder.

The bank wasn’t exactly in rude health when Ramos took over. One might argue that the culture is still somewhat problematic, but she inherited an organisation that was all but broken (to the point of being toxic). That there has been any improvement at all is some achievement.

‘Price war’ in perspective

The premise of the Business Day editorial, and other opinions floating around, is that because it has no group CEO, the “price war” currently underway in the ultra-competitive market will further damage Absa.

First, calling the move by rival banks to cut fees of entry-level accounts to the R5 level (or dropping them altogether) a “price war” is rather charitable (there have been no substantial price cuts in other segments, particularly the middle market). Two factors forced their hands: TymeBank entered the market with an account with no monthly fees, and Capitec cut its monthly fee to R5 (as a direct response to the former’s launch).

Nedbank, Standard Bank and FNB all jumped on the bandwagon in various ways. The Business Day editorial argues that “Absa is the only one of the big four banks yet to join a banking-fees price war that has seen the likes of Nedbank, FirstRand and Standard Bank promise consumers everything from zero-fee bank accounts to actually paying the man on the street to bank with them”.

Two heads may be better than one – but five or more?

The problem is that Absa has a large number of executives and senior managers responsible for precisely the unit that suddenly has a little more competition: the retail bank. These include Retail and Business Banking CEO Arrie Rautenbach, Everyday Banking head Cowyk Fox, Customer Value Management head Christine Wu, Physical Channels head Tshiwela Mhlantla, and Virtual Channels head Aupa Monyatsi.

If Rautenbach or Fox or any other leader in the organisation thinks it’s important to cut the monthly fee of its entry-level Transact account from R5.30 to under R5, they don’t need the blessing of Ramos (or interim CEO René van Wyk or whomever the new group CEO will be). Whether Rautenbach is the right man to lead its retail banking charge is another question entirely.

Right now, Absa has an awful lot more to worry about than sub-R5 bank accounts which are unprofitable for all major retail banks, barring Capitec.

Competing aggressively at this end of the market is not part of its strategy, as detailed in December – and growing customers in the entry-level segment is not going to help in the retail bank’s turnaround. (Never mind the fact that Absa has been struggling at the lower end of the market for a decade).

Eye on the prize

Absa’s target is, simply, the “core middle and affluent” market.

It has told the market which major problems it is focusing on fixing:

• It has lagged the market on almost every measure
• This (rather obviously) translated into “below market growth”
• Its private banking client base is “misaligned to the market”
• It has an ageing customer base
• It has lost the number one spot in home loans (and its average age is 46, versus a market average of 39).

One need only look at four charts published by Nedbank in a recent roadshow presentation (based on SA Reserve Bank BA900 numbers) to see how Absa’s market share has slumped in its lending businesses.

The situation in the home loans unit is downright dire. Vehicle and asset finance has gone nowhere, the credit card business is slumping, and in personal loans it has about the same market share as laggard (and far smaller) Nedbank.

The only area where it has achieved real success recently is in attracting deposits.

None of this is the failure of Ramos (directly) or the board’s non-existent succession plan.

The problems run far deeper than that.

Hilton Tarrant works at YFM. He can still be contacted at hilton@moneyweb.co.za.

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