3 Key areas Absa Bank is focusing on now

Absa Bank Kenya CEO Jeremy Awori

Absa Bank Kenya PLC (ABSA), formerly Barclays Bank, released its financial results for the first quarter of 2020 on May 28. The bank delivered growth across revenue and profit, driven by gains in its core loans business.

Revenue came at Ksh8.6 billion, rising 8% from a similar quarter last year. Profit jumped 3% to Ksh1.96 billion. Notably, the profit would have been higher if not for the huge increase in potential default provision and rebranding costs.

Absa raised its loan loss provision in the first quarter to over Ksh1.1 billion, a more than 75% increase from a year ago.

Banks are generally bracing for a surge in bad loans because of the coronavirus economic fallout. Absa lends to both businesses and consumers. The virus pandemic is dealing a heavy economic blow to businesses and households, raising the risk of loan defaults and losses for lenders.

Here are the three areas Absa is focusing on right now.

1. Protecting market share amid the economic fallout
Kenya’s banking industry is highly competitive and the virus outbreak has just complicated the picture for the players. Absa has prioritised protecting its customers and defending its market share in these economically challenging times.

The bank has waived a range of transaction fees and opened a channel for customers to seek loan repayment relief. For example, Absa borrowers can seek extension of their loan repayment period for an additional 12 months. At this point, the bank has revised repayment terms for Ksh8.3 billion loans.

KCB Group PLC (KCB) and Equity Group Holding PLC (EQTY) are the other big banks that have responded to the coronavirus crisis by allowing borrowers to extend repayment period for their loans.

Additionally, as part of customer production in these tough times, Absa is allowing private schools to obtain unsecured loans. Schools can use the loans of up to Ksh10 million to pay staff and regular bills.

Private schools rely on tuition payments for the vast majority of their revenue. But with schools across the country called in response to the Covid-19 outbreak, parents aren’t paying tuition, leaving private schools facing severe cash shortage.

2. Rebranding and strategic acquisitions
Absa plans to continue building awareness around its new brand after separating from its former parent Barclays. The bank spent Ksh552 million on rebranding in the first quarter. It expects the rebranding campaign to run for the next two years and weigh on earnings over that period.

Amid the rebranding, Absa will also continue to purchase strategic assets and operations from Barclays as it works to expand and diversify its business. While Barclays brand was associated with the affluent, Absa seeks to be a mass market banker to expand its market share.

3. System upgrade and cost controls
Absa is not only driving awareness around its new brand after splitting from its former parent Barclays. It is also upgrading its system and automating processes as it seeks to operate more efficiently so it can keep costs down and improve profitability.

For example, Absa is investing in digital banking technology, which enable customers to access bank products without having to walk into a banking hall. That way, customers can transact more, potentially boosting fee income for banks. Moreover, digital banking can open more opportunities for Absa to reduce reliance on physical bank branches, which could in turn reduce staff and rental expenses.

Finally, Absa shares rose about 2% in May to wrap up the month at Ksh10.80. At this price, Absa stock is down 19% since the beginning of 2020 and trades 24% below its 52-week peak of Ksh14.20.