Absa has been a particularly wild ride for investors since Maria Ramos stepped down as group CEO in 2019. Finally, however, it has achieved stability after the appointment of former Standard Bank deputy CEO Kenny Fihla in June last year. The only drawback, perhaps, is that he is an investment banker in a predominantly retail bank.
Stefan Swanepoel, an equity analyst at M&G Southern Africa, says South Africa’s banking sector remains resilient, supported by strong capital positions and prudent risk management. He argues that the local operating environment is playing its part, with interest rates falling and improved consumer confidence.
Rising digital adoption is expected to drive increased banking activity, though it will move business away from the big four towards fintechs such as GoTyme Bank, Bank Zero and OM Bank. Swanepoel expects asset (loan) growth across the banking sector into 2026. M&G and several of its peers, such as Old Mutual Investment Group, consider the South African banking sector to be very attractively valued.
Banks should provide solid, if unexciting, earnings and dividend growth. Swanepoel argues that the continued strength of the South African bond market has led to a declining cost of capital. M&G includes Standard Bank and Investec alongside Absa as preferred buys, as they trade at discounts to their intrinsic value.
This is quite different from Capitec, one of the most expensive banks in the world on a price-to-book basis. Yet it is a bank with a management team that has earned its high rating.
Under Fihla, Absa has a clearer strategic direction. Soon after his appointment, the new CEO gave the market a no-holds-barred assessment of the group’s challenges. Fihla knows that he needs to address long-standing concerns around execution, cost efficiency and capital allocation.
Swanepoel says that with deep, multidecade experience across banking, including corporate and investment banking (CIB), as well as extensive Rest of Africa (RoA) exposure, Fihla has both operational credibility and strategic depth.
The management team has refocused on profitable growth, cost efficiency and making the most of its RoA footprint.
The proof of the pudding will be in Absa’s ability to attract and retain experienced talent in critical senior roles, something it has often been unable to do in the past.
As then interim CEO Charles Russon admitted to the FM last year, Absa has often prioritised market share and revenue growth ahead of returns. He conceded that capital allocation had been efficient but that return on equity (ROE) has lagged the peer group materially.
Fihla has promised bottom-up cost discipline, improved operating leverage and more selective capital deployment.
Management is even prepared to part company with subpar or value-destructive clients. The bank hopes for a gradual improvement in returns towards the group’s targeted 18% ROE. It’s still barely 14%, but it is going in the right direction.
M&G hopes that continued ROE improvement will be a critical catalyst for restoring investor confidence and supporting a potential valuation rerating.
Its Africa footprint is expected to contribute an increasingly large share of group profitability. Absa — which bought the old Barclays Africa business — is second only to Standard Bank in terms of its pan-African banking franchise.
Swanepoel says Absa still looks cheap, as it trades at a discount with a price-to-book ratio of around 1.25.
Absa has filled a key vacancy with the appointment of Sitoyo Lopokoiyit as CEO of personal and private banking (PPB), effective April 1.
Lopokoiyit’s unique selling point is his deep expertise in a wide range of areas, including financial services, telecoms, customer value propositions and experience, as well as large-scale business transformation.
His most recent job was as MD of M-Pesa Africa and chief financial services officer at Safaricom, where he led strategy and growth at Africa’s largest fintech platform, with a mandate to expand the platform’s reach and relevance across African markets.
Absa says Lopokoiyit’s appointment represents an important step in its renewed focus on integrated, customer-friendly solutions across its PPB unit. It will also explore new growth opportunities. Absa recognises the blurring between telecoms and financial services, as banking moves from the branch to the handheld device.
With more than 12 years’ experience in the relatively new field of fintech, Lopokoiyit helped scale M-Pesa into a pan-African business serving more than 56-million customers and over 5-million businesses. He has driven the launch of innovations such as the M-Pesa Super App, Fuliza and strategic partnerships with global platforms including PayPal and Alipay.
As a telecoms executive, he brings a different perspective from traditional bankers (and there is no shortage of them in Absa’s senior ranks).