Big four bank Absa has told its ICT suppliers to slice as much as 15% off their invoices, hurting small companies just as they prepared to close up shop for the festive season break.
Absa Bank, a subsidiary of the JSE-listed Absa group, has 12.3 million customers and is one of the largest retail banks in SA. The group operates 9 288 automated teller machines and has 36 535 permanent employees. The bank is a subsidiary of UK-based Barclays Bank PLC, which owns 55.5%.
The retail bank sent its suppliers a letter late last year, saying it requires a “10% to 15% reduction on all current agreements and renewal of such agreements”. The letter, a copy of which is in ITWeb's possession, was signed by the bank's commercial executive of group technology, Emile Burger, and head of technology sourcing, Stephan Kok.
Absa requested a list of all resources being provided to it, as well as all rates, and the duration of the agreements. It asked for new proposed rates.
“Once this information has been provided, the following action will be applied: All renewals will be subject to a 10% to 15% reduction in charges. As for existing agreements, a variation agreement will be drafted in order to incorporate the proposed rate reduction into the existing agreement.'
The letter adds that if suppliers cannot provide it with a reduction, meetings can be set up to discuss concerns.
Hurting
The source says the cut will affect margins at “lots of contractors”. Some firms will see the bulk of their business affected and may have to shut down or cut staff numbers, he says.
Margins in the sector are generally between 22% and 23%, but the bank only pays on 45 days, which trims the margin down to 7%, because of the cost of carrying the debt, the source explains.
Another source, who also cannot be named, says the cut will affect his business from the beginning of this year. He sees the cut as a “short-term” solution adopted by the bank to trim its costs.
A third source says the cut has “caused a few issues” and he is negotiating with the bank around rates. If the issue cannot be resolved, he may have to stop doing business with Absa, or put less expensive, and less skilled, staff on the Absa account, he notes.
The third source says his business with Absa is sizeable and he is trying to expand other areas of income so the company is less reliant on the bank.
Efficiencies
Absa, which is in a closed period, did not respond to all of ITWeb's questions. The bank says “improving efficiencies will remain at the centre of our key business priorities”.
“With developments in technology and processes, we consistently seek to improve output and efficiencies while reducing duplication,” the bank says.
“In line with global trends which have seen the recalibration of the cost base of consultants and contractors, Absa held similar discussions with some of its ICT suppliers of human capital last October. The aim is to optimise value, as well as attain a cost reduction.”
It says the cost reduction is in line with its programme of integration with the rest of Africa and the efficiencies that derive from this process. “In all these efforts, our customers and staff remain key and we follow a fully consultative process with all relevant stakeholders,” says Absa.
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