Absa Seeks First-Time Buyers in Push to Revive Mortgage Unit

(Bloomberg) -- Absa Group Ltd. plans to claw back market share in South African home loans by taking on more risk and targeting first-time buyers, as Chief Executive Officer Maria Ramos embarks on a new era outside the clutches of Barclays Bank Plc.

South Africa’s third-largest lender once had more mortgages on its books than any of its local rivals, but the Johannesburg-based company fell behind after Barclays acquired control in 2005. Now that the U.K. bank has sold down its stake, Absa is plotting how to play catch up in a country with sluggish economic growth and an unemployment rate of more than 27 percent.

The firm has “the confidence to boost our lending book in a tough macro environment,” Retail and Business Banking Chief Executive Officer Arrie Rautenbach said in an interview at Bloomberg’s Johannesburg office. “Absa is sitting on a balance sheet of over a trillion rand ($72 billion) -- we are definitely able to take smart, additional risk on that.”’

Rautenbach’s division generates more than half of Absa’s total revenue, and is at the forefront of a turnaround drawn up by Ramos, who promoted the 53-year-old while splitting the lender into four divisions early last year. She expects the bank to increase revenue at a faster pace than rivals from 2019 to 2021.

Young Buyers

To achieve this, Rautenbach plans to boost lending across the unit, including vehicle finance and personal loans. He also intends to grow Absa’s share of the new mortgage market to 28 percent from 20 percent in the next five years, partly through expanding in the affordable housing market and lending to younger first-time buyers, who typically don’t have strong credit profiles.

“When we talk about young professionals we are comfortable to lend at, let’s call it 100 percent, because we have taken a different view on the risk assessment,” Rautenbach said. “We back the jockey, we back the property, we back a number of different things to allow people to come into this market earlier,” he said.

During the Barclays years, Absa had to cater for its global parent’s priorities, which contributed to slower growth in its South African market. Now it’s free to stage a comeback, but must contend with an increasingly competitive banking sector with established lenders including FirstRand Ltd.’s First National Bank and Nedbank Group Ltd. introducing new products. Furthermore, at least two new banks are set to launch this year.

Absa and Standard Bank Group Ltd. are the only two South African lenders to have seen their stock fall over the last 12 months, but the former has outperformed all peers since the start of 2019, gaining 5.7 percent. The stock traded 1.2 percent higher at the close in Johannesburg on Tuesday, valuing the company at 145 billion rand.

Absa increased new home and auto loans faster than some of its rivals in the first half of 2018, with mortgage figures up 16 percent in a flat market. But third-quarter new mortgage data released last month by the South African Reserve Bank showed a deterioration in the value of new loans granted from the previous year. That suggests the market will have a poor start in 2019, John Loos, a property sector strategist at FNB Commercial Property Finance, said in a note.

Read more: Nedbank Sees Muted Mortgages Growth on South African Land Debate

“We have got to make sure we can lend and then the rest -- such as growth in transactional banking will follow on the back of that,” said Rautenbach. “The mortgage business is an anchor product.”

--With assistance from John Bowker and Gordon Bell.

To contact the reporters on this story: Roxanne Henderson in Johannesburg at rhenderson56@bloomberg.net;Loni Prinsloo in Johannesburg at lprinsloo3@bloomberg.net

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, John Bowker, Gordon Bell

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