Key to this strategy is product diversification and product innovation
Absa Bank Botswana says its strategy for deposits is underpinned by finding a very solid position in terms of what the bank is paying for liabilities versus assets it can write. It is what management emphasised during the group’s results presentation as one of the bank’s strengths: to construct a solid balance sheet premised on the rate at which the lender can drive assets.
Finance Director Cynthia Modisana said Absa is cognisant of what “is optimal funding levels for the bank”. Responding to questions during the presentation of the results for the half year ended 30 June 2023, Modisana stressed that the strategy Absa deploys brings deposits relative to growth, mindful of the cost. Market analysts observed that the bank is one of the lowest from a deposit rate perspective but Absa’s cost of funding grew by 52% to P292.6 million during the first half of 2023. It means the bank is still paying for deposits but the treasury department insisted they are looking at how much “we are able to pay”. “The cost of deposits has grown, so loading them on, you need to pay careful consideration to the actual impact on the bank,” Modisana answered, backed by Country Treasurer Salma Baduel. In the end, the two accept that it is about how much you can loan out. “We are trying to find a fine balance between growing the deposit book but we need to bring them in at the right rate,” said Baduel.
During the first half of 2023, Absa’s gross loan book growth was 10 percent (lagging market growth of 11 percent) which Modisana explained was what the bank wrote and disbursed to the customers. But on the face of the balance sheet, Absa reported 5% growth which she said was the net movement after taking into consideration the impairment levels. Deposits registered a growth of 3% versus the market’s growth of 10% between 2022 June and 2023 June.
Accounting for this, Baduel explained that when it comes to market data, what is not highlighted is foreign currency deposits, which the bank dominates. “When you strip that out, you actually realise that from a deposit perspective, the gap between us and the market is not as high as you are seeing,” said Baduel when responding to questions from the floor. “One thing to note on market data is that we have a leading foreign currency loan book,” she continued, although not divulging the size of the book. Absa looks at its growth from a currency lens as it endeavors to diversify its deposit book and sustain deposit growth.
The bank is also looking at where it can bring innovation and product diversity. One evidence is the launch of Islamic Banking, a niche market Baduel said they tap into by bringing deposits that “we believe are sustainable”. While statistics show the bank lags from a local currency perspective, Absa is trying to grow in a sustainable manner which is where the strategy is centered around. The other key thing that the bank’s MD Keabetswe Pheko-Moshagane talked about in her opening statement was structured deposits which also allow Absa to take the opportunity of some of the changes implemented in the market. Precisely the MD salivated at the onshoring of 50% of pensioners’ funds over a period of 5 years. Management is thinking about how Absa can position itself as a bank to start taking advantage of some of those deposits as well as bringing yields to the rest of its clients. The key to this strategy, according to management, is product diversification and product innovation.
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