Absa Bank Kenya is an excellent case study of successful business transformation. It underwent a full-scale rebrand from Barclays to Absa in 2020, expertly navigated the Covid-19 crisis, rebounded to strong record performance in 2021, and has been growing its asset base year-in year out to over Sh429 billion by 2021.
Building on its rich heritage in Kenya and Africa that goes back more than a century, Absa has reinvented itself and become a digital, customer-obsessed brand. Back in 2011, only 34 per cent of transactions were done out of branch through digital platforms, the bank’s Annual Report shows. Today, more than 90 per cent of transactions are done out of branch, underscoring the massive investments the bank has made to enhance its digital capabilities. Absa, which is one of the pioneers of WhatsApp enabled banking in Kenya, continues to invest aggressively in the digitization of its operations.
Absa has earmarked more than Ksh2 billion in capex investments in 2022 to deliver a digitally powered business. This is four times the Sh500 million capex in 2019 and underscores the increasingly important role digital technology plays in the bank’s strategy.
Digitization has not only resulted in greater convenience for customers but has also unlocked efficiencies in the organization and boosted profitability. It has enabled Absa to optimize its branch footprint, reducing branches from 104 in 2011 to 84 in 2021. The bank has also been able to right-size. It employed 1979 people in 2021 compared with 3176 in 2011.
These moves have led to an improvement in the cost to income ratio, a key measurement of banks’ profitability. A lower cost to income ratio indicates a bank is generating profits more effectively. Absa’s cost to income ratio stood at 45 per cent in 2021, a remarkable improvement from 53 per cent in 2011.
Standing by customers
The Covid-19 crisis brought out the best in Absa. The bank stood by its customers and restructured loans worth Ksh62 billion in 2020. This represented 30 per cent of its loan book at the time. The approach to cushion and support customers paid off. Most of the customers managed the crisis successfully without defaulting on their repayment obligations, enabling the bank to control gross non-performing loans (NPLs). Absa, as a result, achieved an industry leading gross NPL of 7.5 per cent in 2020 and 7.8 per cent in 2021. The industry average stands much higher at 13.1 per cent, underlining the quality of Absa’ loan book and assets.
Absa’s clients bounced back in 2021 thanks to vaccinations, relaxation of Covid-19 restrictions, and economic recovery. This led to impressive growth in deposits and expansion of the loan book. Deposits grew 6 per cent year on year to Sh269 billion in 2021 compared with Sh254 billion in 2020. The loan book expanded by 12 per cent year on year to Sh234 billion in 2021 compared with Sh209 billion in 2020.
This resulted in impressive financial outcomes, including a 161 per cent increase in profit after tax from Ksh4.2 billion in 2020 to Sh10.9 billion in 2021. Thanks to this performance, the Nairobi Securities Exchange (NSE) listed bank resumed dividend payments in 2021 after briefly pausing dividend payments in 2020 after the Central Bank of Kenya (CBK) asked banks to halt dividends in favour of protecting capital. It distributed Sh6 billion to shareholders for the fiscal year 2021 and attained a dividend yield of 9 per cent, the highest in the financial sector.
Absa has successfully implemented a culture transformation journey that has enabled it to create a high-performance work environment. It’s not surprising that the bank is on course to achieving some of its strategic goals ahead of schedule. As an example, as part of its 2018- 2023 strategic plan, it is targeting to have a cost to income ratio below 50 per cent by 2023. In 2021, it had a cost to income ratio of 45 per cent, achieving its goal two years ahead of schedule. While also targeting to have a market share of between 8 and 10 per cent by 2023, by 2021, Absa had a market share of 7.8 per cent, indicating that it is likely to achieve the goal ahead of planned timelines.
In terms of its corporate brand, Absa’s ambition is to be a great place to work in and a force for good in all the communities it operates. Already, Absa Bank Kenya is already certified as a top employer in Kenya and Africa in 2022 by the Top Employers Institute.
Commenting on the accolade, Jeremy Awori, Absa Bank Kenya CEO, observed that, “it is a great testament that our strategy on transforming our workplace and evolving our ways of working is sound, and underlines one of our core values at Absa which is that, ‘Our People are our Strength.”
Dr Awori, who has topped the Business Monthly East Africa magazine’s Top 25 Most Influential CEOs Impacting Business in East Africa three years in a row, has also taken a visible stand on business sustainability. Under his leadership, Absa became the first bank to be recognized by the Kenya Green Building Society for championing initiatives that promote the green economy.
Besides environment, other areas of focus in Absa’s business sustainability strategy are education and skills development as well as inclusive financing. The bank has been purposeful about lending to sectors that accelerate economic development, including SMEs and women-led business. The bank recently launched the Absa She Business Account proposition, tailormade for needs of woman entrepreneurs with a commitment to impact over 1 million women owned and led businesses over the next 5 years
In 2020, Absa launched its 13-sustainability commitments based on the United Nations’ Sustainable Development Goals (SDGs). The bank is a pioneer signatory to international sustainability initiatives including Principles for Responsible Banking and the UN Global Compact Kenya chapter.