Absa Group, South Africa’s third-largest lender, is preparing to convert its existing representative office in Nigeria into a fully operational merchant bank, a move aimed at reducing the bank’s reliance on its core markets.
The planned expansion follows economic reforms introduced by Nigerian President Bola Tinubu that are intended to attract foreign investment and accelerate growth in Africa’s most populous country.
Nigeria expansion plan
Securing a merchant banking license would provide the regulatory clearance needed for the conversion.
If the conversion is completed, Absa would compete in Nigeria’s corporate finance market with South African rivals Standard Bank and FirstRand, as well as Nigerian lenders Access Bank, Zenith Bank, and First Bank of Nigeria.
Revenue diversification
In the six months to June, Absa’s core markets of South Africa, Kenya, and Ghana accounted for more than 80% of total profit.
Absa Chief Executive Officer Kenny Fihla said the concentration creates exposure to shocks.
The dependence on two or three big markets is fine if you’ve got tailwinds, but as soon as you experience some headwinds, you are vulnerable to massive shocks. Which is why then the primary thrust of our strategy is to diversify our revenue streams, both in terms of geographies, in terms of business lines, but also in terms of client segments.
East Africa stake
Absa has also increased its equity stake in its Kenyan subsidiary to 72%, below an initial target of 85%.
Absa’s Group Executive for Africa Regions, Charles Russon, said the bank may raise the holding further.
Over the next couple of years, when the time is right, we will try to increase further. Ideally, we would like to have as big a position as possible.
