Absa bank to grow return on equity by 4pc

A woman walks past a branch of Barclay's South African subsidiary Absa bank in Cape Town. [Photo: Reuters]

JOHANNESBURG- South African lender Absa Group set out new targets to raise its return on equity (RoE) by around 4 percent by 2021, from levels currently among the lowest of South Africa’s big four banks.

In a statement, the bank said on Friday it hoped to grow its RoE to between 18 percent and 20 percent by 2021, from 16.4 percent in 2017 - above the 15.3 percent reported by peer Nedbank.

But that compares to the 23 percent achieved by South Africa’s biggest lender by market value, FirstRand in the year to June 2018, and 17.1 percent at rival Standard Bank.

Absa, currently South Africa’s third biggest lender, is trying to carve out a name for itself as a stand-alone African bank after separating from its parent, Britain’s Barclays, in 2017.

Earlier this year, it laid out a new strategy including a plan to double its market share across the continent to 12 percent, starting by entering the Nigerian market.

Also on Friday, the bank said it thinks it can grow revenues faster on average than the South African banking sector as a whole between 2019 and 2021, and that it can achieve this “within appropriate risk parameters”.

This, along with an ongoing effort to trim costs, mean it also hopes to see its normalised cost-income ratio fall to the low 50s by 2021. This increased between 2016 and 2017, from 55.2 percent to 56.8 percent.

The bank said the targets are based on its current expectations for growth in South Africa and other countries on the continent where it has a presence, and did not account for any major unforeseen economic or regulatory changes.

Absa also reaffirmed its guidance for its full-year results in 2018, including that its normalised return on equity would increase slightly from current levels.