Financial Strategy Essay

1241 WordsMar 9, 20125 Pages
BANKS - PROFITABILITY AND EFFICIENCY Banks are no longer chasing market share. Now, after the financial crisis, it’s all about profitability and efficiencies. This is reflected in the Reserve Bank’s BA900 returns for November 2010, which show a realignment of market share in total advances (a measure of total credit extension). For the first time in 10 years, the top two of the big four, Standard Bank and Absa, are starting to lose their dominance in the retail market. It is especially pronounced in mortgages, personal loans and instal ments. Standard Bank, for example, is not growing in personal and instalment loans, with Nedbank taking the lead in personal loans. Absa, once the leader in the mortgages market, has lost significant ground — from 33% a few years ago to 29,4%. This trend started two years ago, after the financial crisis, when both banks put the brakes on lending criteria, especially on new and loan-to-value mortgages. The trigger: bad debts were shooting through the roof. In early 2010, Standard and Absa started relaxing some of their criteria, but uptake was slow as households were still heavily indebted. However, household debt leverage improved in the second half of 2010 with consumers taking out more mortgage debt but, by then, Nedbank and FirstRand, through First National Bank (FNB), had moved quickly to gain a big lead in that market. Absa faces fierce competition from all sides in its mortgage business. The BA900 figures show that Absa’s market share in mortgages slipped to 29,4%, while Standard Bank upped its market share for the year marginally, from 26,36% to 26,95%. Standard has grown mortgage advances by 7 percentage points to R296bn, compared with Absa’s more pedestrian 2 percentage points to R310bn. But Absa CEO Maria Ramos seemed oblivious to customers’ unhappiness over the bank’s reticence to lend. At a post- Davos

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