Simpler, better, faster: Fihla’s blueprint for Absa

Kenny Fihla, as blue-blooded a banker as there is, has one of the most unenviable tasks in South Africa’s banking sector: resolving Absa’s identity crisis, which has lasted the better part of two decades.

In a wide-ranging interview with the FM, Fihla says that when he took over in June last year, after an 18-year career at Absa’s big rival, Standard Bank, he quickly spotted what needed to be done.

“If you look at where Absa was 20 years ago, it was the No 1 retail bank in South Africa by far. But we’re no longer [that] … In fact, we’re not the No 1 retail bank in South Africa [at all],” he says.

The story of this retreat, despite an “unbelievable client franchise”, reveals much about how the bank lost that primacy of position. Leadership turmoil and insecurity in its C-suite “created a culture of bureaucracy”, where the “safer thing to do is to make decisions by committee, and that slows the organisation down”, Fihla explains.

It is this that Fihla has set his sights on changing. Controversially, he has done this by hiring a slew of talent from Standard Bank. But there is deep method behind his plan to revive the modern Absa, making it simpler, better and faster than all its peers once again.

Fihla is not wrong; for more than a decade, Absa’s only constant has been change. The bank has cycled through different owners, leadership teams, strategies and operating models, rarely enjoying a long enough stretch of stability to build momentum.

One of those owners, between 2005 and 2022, was British bank Barclays. It was a dismal period: its centralised control often meant executives in South Africa couldn’t make real decisions, and its eventual departure triggered an expensive unbundling.

Denker Capital’s Kokkie Kooyman says Barclays simply did not understand South Africa. “It introduced guidelines and regulations and tried to control things from London. The people in South Africa were not allowed to use their local expertise and discretion,” he says.

In the wake of Barclays’ departure, Absa was plunged into a gruelling cycle of leadership churn and endless strategic resets. “They split the retail bank into three parts, then combined it into one again,” Kooyman says. “Every time the structure was changed once more.”

Deon Raju, Absa’s group financial director, has watched most of this from inside. He joined the bank in 1999 and experienced firsthand the effects of this fluctuating environment.

“The leadership changed so much. Just when people built a human connection, suddenly there was somebody new,” he tells the FM.

As a result, Absa’s speed of execution suffered, Raju says. “That constant state of change makes execution very difficult. Because just when you start to get momentum, you [have to] stop. Then you have to start to build again.”

Decisions by committee became the norm, slowing execution to a glacial pace and steadily eroding Absa’s historic dominance in the retail market.

Another veteran investment manager says: “You could definitely see that Absa was, in a sense, being run by consultants — they were helping to shape its strategy by proxy.”

While competitors carved out distinct brand propositions, the red giant — once the largest in the retail sector, with the biggest share of home loans — had to lean on legacy loyalty while struggling to articulate what set it apart.

“It had a wide footprint and a strong retail customer service base. But beyond that, there was nothing particularly special,” says the investment manager.

The end result of this identity crisis: a bank that, over the past 20 years, has seen its share price perform worse than its rivals’ and even the JSE’s all share index. Over the past two decades, Absa’s share price has risen 4.3% per year, trailing Nedbank (5.2%), FirstRand (9.6%), Standard Bank (7.3%) and Capitec (28%).

Still, Kooyman does not see a fundamentally broken bank beneath Absa.

“If there are, or were, problems, they would be in terms of execution or marketing,” he says. Bad debts are not unusually high, and Absa’s cost base is not dramatically higher than those of its peers. The problem, he says, is that the bank has largely struggled to convert its formidable underlying franchise into market share growth.

Blue-blooded bankers

Ironically, the latest bout of change is meant to end this cycle and finally bring some consistency — and this is where Fihla comes in. To do this, he has surrounded himself with seasoned executives whose abilities he already knows well.

Seven senior executives from Standard Bank have followed him across, taking up influential positions spanning corporate and investment banking (CIB), business banking, risk, client coverage and legal. It is an unusually concentrated migration of talent between two of South Africa’s biggest banks.

But Fihla knows what he’s doing. “I have seen these people in action, and I know what they can do, which helps. I can look beyond how they market themselves; they have proven track records I have witnessed,” he says.

In a turnaround, familiarity has obvious value. Fihla is trying to speed up an organisation whose recent history has been characterised by hesitation and interrupted momentum. Hiring people whose judgment, working style and ability he already understands reduces at least one source of uncertainty.

Analysts agree that his hires are all “top talent”. As one portfolio manager puts it: “It helps when anyone’s trying to change a culture to import the elements of the culture that you think worked at your previous place — you can’t do it alone.”

Standard Bank CEO Sim Tshabalala was remarkably relaxed about this aisle crossing when the FM asked him earlier this year whether he was concerned. Standard Bank, he said, has spent decades developing its people through training, secondments and executive education — and this is the outcome.

“We don’t celebrate [the departures], especially if they’re talented, but the competition is good for the industry, and it’s good for the country,” Tshabalala said.

Fihla, however, says it’s not just their familiarity that led to him enticing the new recruits to Absa. “My starting point is not the organisation that the person works for. It’s really to look at what skill sets and experience I am looking for, and then where I can find that,” he says.

While Fihla’s priority might not be the logo on a resumé, Standard Bank serves as a fertile hunting ground for talent, as it resembles Absa in important ways: both are universal banks with large retail, business banking and CIB operations, spread across several African markets.

Kooyman says this migration of talent attests to Standard Bank’s impeccable reputation. “Every interaction with [the new executives] reflects a high standard of professionalism,” he says; they will naturally bring some of that culture with them.

There is an obvious danger in that strategy. If too many senior jobs appear to go to people from one rival, existing Absa talent could reasonably wonder what that says about their own prospects.

But Fihla says he is not simply building Standard Bank 2.0. He says the majority of his direct reports are people he inherited at Absa and chose to retain. External recruitment, he argues, has been aimed primarily at filling gaps rather than clearing out the old guard.

Nor have all the important appointments come from Standard Bank. For personal and private banking, for example, Fihla looked outside the conventional banking sector for skills in fintech, payments and digital — and landed on Sitoyo Lopokoiyit, former M-Pesa Africa CEO.

But if this latest reset is to amount to more than another chapter in Absa’s long cycle of reinvention, what the bank needs is not another strategy, but the chance to stick with one.

It’s a point Raju agrees with. “We really need a period during which we are focused consistently, for a number of years, on a strategy that is set,” he says. “Then we just execute really well.”

‘The good, the bad, the ugly’

A central part of Fihla’s strategy will be to reassert Absa’s position in the market. This is critical, as not everyone is convinced of where it sits any more.

While other banks have clear advantages that define them, the red bank seems the odd one out. In retail banking, Capitec, FNB and even Discovery are noted as legacy banks by Shaakir Salie, head of research at Aeon Investment Management.

“Capitec is known for being simple and affordable, with no hidden costs, while FNB is known for its extensive rewards programmes and partnerships … and Discovery is a sort of blend of the two, with gamified banking,” he says. In contrast, Salie says, Absa struggles to find its place in the current retail banking landscape.

Standard Bank, Absa’s biggest rival on the rest of the continent, is well known for its scale and immense CIB. It is the largest bank in Africa, with R3.8-trillion in assets, and with influence to match.

Yet Standard Bank’s success is not necessarily Absa’s downfall.

“There are good businesses within Absa,” says Anchor Capital investment analyst Keagan Higgins. He and Salie both acknowledge that Absa’s CIB is hugely successful too, while its retail arm is still sizeable. “[It is] not in as many countries as Standard Bank, but [it is] meaningful in Africa,” Higgins says.

That is perhaps the issue. Absa is good at many things, but not necessarily the best at anything. It might have many good parts, but “it just does not come together into this consistently high-performing entity that we all would have liked”, says Higgins.

Everyone, including Absa’s own executives, acknowledges the bank has a way to go before it can be considered fighting fit again.

Fihla points to “the good, the bad and the ugly” of Absa that he first noticed when he joined the bank last year.

The good is its client franchise, with a level of loyalty in customers that Fihla says is unique. “I haven’t seen it in my previous banking experience, that loyalty factor. And there is something priceless about that,” he says.

The bad, Fihla says, stemmed from the repeated changes in leadership over the past decade, which led to decision-making slowing to a crawl amid the bureaucracy.

The ugly was ultimately a consequence of these decisions by committee, Fihla says, which lost Absa its primary position in the retail banking sector, where it once dominated in home loans and deposits.

It is here that Absa has the most ground to make up.

Mazi Asset Management analyst Kabelo Moshesha says its personal and private banking has performed worse than those of its peers. But he argues that there is much room for Absa to build on its product penetration and reclaim its share of South Africans’ wallets from FNB and Capitec, which gobbled parts of its market share.

And Moshesha says it can be improved beyond just retail banking. “Business banking has scope to broaden its transactional and digital revenue base, [and] CIB needs to improve the contribution from advisory and client-led fees,” he says. “This would reduce reliance on lending-related income and support a more diversified, capital-efficient revenue mix.”

Analysts agree that what it needs is a brand reset, both internally and externally, that would resolve the dilemma for customers: where is Absa positioned exactly? And where could it be, if it plays its cards right?

ABG Prime or SBG-Lite?

Under Fihla, many things are changing — but much has to stay the same.

For instance, Moshesha says that the influx of Standard Bank executives creates “a meaningful risk” that Absa might simply transform into a Standard Bank 2.0.

“The group needs to ensure that its culture and operating model are strengthened by the appointment of former Standard Bank executives, rather than simply importing Standard Bank’s culture and approach,” he says.

He notes that in personal and private banking, for example, “differentiation, rather than replication, will be needed to close the gap to peers”.

That may be true, but a change of culture is still desperately needed.

Fihla and other executives point to the damage done by the bureaucratic mindset as one of the main reasons that there is a need to get new blood in there.

“Changing the culture is one of the primary thrusts of our strategy,” Fihla says. “Ensuring that people move from being internally focused to being client-focused; from being process-driven to being outcomes-driven; from just accepting mediocrity to being performance-driven.”

It’s a nice sentiment, but not easy to implement, especially among a host of existing Absa employees who might feel irked at being passed over in favour of new hires.

“Change is an uncomfortable thing because it’s an emotional thing,” says Raju. “The majority of people in Absa want to make Absa great,” and if that includes bringing in outsiders, they will welcome it.

Raju says the best way to “get the organisation settled down as quickly as possible and aligned to execution” is engaging with Absa staff.

“Sitting in your office as an ivory tower is not going to work for getting the culture changed. You’ve got to set the tone from the top … you’ve got to be visible and talk to your people,” he says.

To him, a change in culture would lead to faster execution and being more focused on clients. These are two things Lopokoiyit says have changed.

Lopokoiyit tells the FM that it previously took up to six months for branches to replace employees, such was the apprehension about acting quickly. To make it worse, branch staff were then made responsible for selling altogether up to 18 products to customers.

Today, Lopokoiyit says, employees are replaced within 30 days, while branches now serve customers only six main products.

Deadlines have been slashed right around the group. For instance, Absa’s new partnership with EasyEquities, which is designed to offer customers digital investing in its app, was established in four weeks — far quicker than the initially planned nine months.

Analysts say that if the bank treads carefully, it can indeed shift the culture without becoming “Standard Bank-Lite”.

For Higgins, it’s less about giving Absa a total makeover than about “getting more out of the franchise and capital base it already has”.

Salie agrees, saying that when it comes to its African business too, the “new Absa” will look quite different from Standard Bank, while conceding that “with that comes very different challenges”.

While Absa and Standard Bank have some crossover on the continent, Standard Bank is far more diversified and is based in 21 countries, whereas Absa is concentrated in a small number of markets, notably Kenya and Ghana.

Higgins says it’s more important for Absa to “deepen its position in the countries where it is already” than it is for it to try to outperform Standard Bank. Its success, he says, has to be unique.

Show me the money

Absa’s executives, and even customers, might back the turnaround story, but investors are still circling, unsure whether to dive in or run away.

“We’ve seen the market get hopeful about Absa before,” Higgins warns.

As results improved in the past few years, Absa’s share price rose as investors began giving it credit for a stronger earnings trajectory. “But that confidence has been tested again, which is why I think the market is now more in a ‘show me’ phase.”

This is a rational response, particularly as the bank hasn’t yet delivered the sort of returns that seemed possible even a year ago. Since June, when it released weak trading numbers, the stock has fallen 8.2%.

That trading update indicated that Absa’s projected return on equity (ROE) — a key number for a bank — would drop to just 15%. This isn’t a good look, especially against ROE of 19.8% for Standard Bank or 24.9% for FirstRand, though it is in line with Nedbank.

Until Absa’s ROE shows real signs of improvement, investors are likely to wait on the sidelines. The bank, though, is positive.

“We’re fairly confident that our ROE has started the process of ticking up,” Fihla says. “We think that journey of ROE improvement will continue, which is why we’ve got an ROE target of 16%–19%.”

Which is fair enough, but it has been Absa’s target for a while. The question is when Fihla’s strategy will begin affecting its bottom line.

There are other points of contention too.

“Costs are where we as investors are most watching Absa,” says Salie. “Can it improve its efficiency in the way Standard Bank did over the past 10 years, or is it too late? I think if it can do that well, it might not even need a significant turnaround to take place in retail.”

At last count, Absa’s cost-to-income ratio was at 53.4% — higher than Standard Bank’s 49.3% and FirstRand’s 48%, though, again, lower than Nedbank’s 56%.

Higgins says the test will be whether Fihla’s changes translate to better revenue growth, market share gains and ultimately a better cost-to-income ratio.

Fihla agrees: “The real test of whether we are now efficient will be when our cost-to-income ratio drops from 53.4% to about 50% or below. That will be the real proof that we’ve moved the dial.”

The target is to move to below that 50% level by 2028, which Absa is confident it’ll hit.

So how does Fihla account for this recent wave of scepticism from investors?

When asked, he says Absa was perhaps premature in trying to implement its turnaround plan — and its financial results reflected that. “We went into a boxing ring with one hand still in a cast, and we proclaimed we were going to win this fight.”

Yet Fihla is confident that with new executives — including Lopokoiyit and new CIB head Zaid Moola (who arrived after, ahem, 22 years with Standard Bank) — the “cast is off, and we’re more confident we’re going to win”.

And, fingers crossed, that there will be some stability.

“Every man and his dog could say there have been enough strategy resets and management changes,” says Higgins. “Now, with this team in place, it’s just about executing and trying to deliver on that mandate.”

The final reset?

Fihla’s goal is to leave Absa in a better place than he found it: a leading African institution that is more consistent, more client-led and more cohesive.

“I’ve never left an organisation without a tangible legacy,” he says.

Since January, Absa has organised itself around three pan-African arms — personal and private banking, business banking and CIB — rather than treating the rest-of-Africa operation as a separate regional bloc.

The new model is deliberately built around two things: geography and the customer.

As it is, Absa has established franchises, strong deposit bases and deep customer relationships across the continent, which one portfolio manager argues will position it to be a credible alternative to Standard Bank for clients in Africa.

Kooyman argues the challenge is not simply geographic. “It is still very much a transactional bank in Africa, and it does not earn enough fee income,” he says.

Nonetheless, Kooyman expects some blue to rub off on Absa, creating something of “a red Standard Bank”, but not a carbon copy. Fihla, he says, will apply the lessons he learnt there in his own way, leaving a “more professional and more purposeful” Absa.

But this will take time to play out; evidently, the investor expectations of a quick fix were too hopeful.

“You have to give him at least a year,” Kooyman says. “I think it is more likely to be in 2027 that you will see whether the bank is getting it right.”

For Lopokoiyit, success would mean that customers eventually stop thinking of Absa primarily as a bank. “We won’t be seen as a bank; we’ll be seen as a partner embedded in the lives of our customers, and banking becomes secondary to that,” he says.

The goal is to be simpler and faster, with a bank organised around what customers are trying to achieve rather than the individual products Absa wants to sell them.

Moola says Absa wants to be the “go-to” place and most trusted adviser for customers.

“I do think, from a people perspective as well, I would really want us to be, without any doubt, the employer of choice,” he says. “I don’t think it’s going to be a bunch of individuals who make us successful. It is honestly the more than 37,000 people we employ who will make that difference.”

That’s a big ask for a bank at which staff would have gone to work with an even chance of finding out the CEO had resigned overnight, as happened with Fihla’s predecessor, Arrie Rautenbach, in August 2024.

But Moola says employees won’t believe the rhetoric about a new culture until they see executives behaving differently. That means spending more time with clients and staff and resolving problems fast enough for people to see the old constraints don’t apply.

Fihla, for his part, knows that getting there will require more than assembling an impressive cast of executives. “It requires consistency, it requires strength of conviction, and it requires us to align and work as a team,” he says. “When we can wield our individual strengths and come together as a team, we become formidable and unbeatable.”

He didn’t say “simpler, better, faster”, but you get the picture.