Absa eyes Angola return and Nigeria banking licence

Absa has its sights set on a return to Angola and is considering a merchant banking licence in Nigeria as it looks to broaden its earnings base beyond its three main markets of South Africa, Ghana and Kenya.

The lender is looking to establish a representative office in Angola, Africa’s third-biggest oil producer, nearly two decades after it exited the market. Absa has a representative office in Nigeria, though a merchant banking licence would give it access to capital, underwriting, and advisory services in the continent’s most populous nation and top crude producer.

Absa Group CEO Kenny Fihla flagged the risk of concentration in the three countries — South Africa contributed 72% of the group’s earnings in the six months to end-June, characterised by a poor performance from the Africa portfolio, particularly in the corporate and investment- and business-banking franchises.

Fihla said the group’s strategy is about driving diversification of the business on three levels: spreading the business across client segments; diversifying its product offering; and adding more geographies.

“We are looking at opening a representative office in Angola, which will be critical for the CIB [corporate and investment banking] business because even if we don’t have a full banking licence, if we have a presence in-country, we will be able to identify trade opportunities and undertake some of the global market activities,” Fihla told Business Day on Tuesday.

“In Nigeria, we are evaluating whether we should stay with a representative office or whether we should be exploring other alternatives, including a merchant banking licence. That work is under way, and at the right time we will communicate what route we will be following.

“We think we understand Nigeria well enough to be able to take the next step.”

Merchant banks in Nigeria operate on a wholesale banking model, focusing on corporate finance, asset management, debt structuring and trade finance. They are explicitly prohibited from accepting retail deposits or offering retail savings and/or current accounts.

In 2009 Absa sold its 50% stake in Angola’s Banco Comercial Angolano after failing to obtain outright control of the operation.

The group recently announced a R4bn deal to increase its stake in its Kenyan bank to 85% from 68.5%, a move that comes shortly after it clinched a deal to buy Standard Chartered’s wealth and retail business in Uganda — where it has an established presence.

Absa’s footprint covers Botswana, Ghana, Kenya, Mauritius, Mozambique, Seychelles, Tanzania, Uganda and Zambia. It also has a representative office in Namibia, securities entities in the UK and US, a non-banking advisory subsidiary in China and a technology support service office in the Czech Republic.

In Tanzania, Absa is looking to combine its two businesses in Tanzania into a single enterprise, which it can back with capital to drive scale.

Read: Absa’s digital users rise 14% as it pushes technology adoption

In April, the group opened its Dubai International Financial Centre branch within the United Arab Emirates.

Although Absa’s Africa regions’ balance sheet is considerably smaller, at just 19% of its total customer deposits and equity, it is more sensitive to falling rates and accounts for almost 60% of its interest rate sensitivity.

Fihla has reorganised the group into three pan-African-facing business units: personal and private banking, business banking, and corporate and investment banking.

“We are strengthening key propositions, including wealth, by expanding our capabilities in Mozambique and Kenya and establishing a Mauritius wealth hub as a gateway for offshore and cross-border client needs,” he said.

“Together, this enables us to connect clients, deepen relationships, and capture a greater share of Africa’s long-term growth potential. These are just a few examples of the actions under way across the group to strengthen our competitive position and capture a greater share of Africa’s long-term growth opportunity.”