South African lender Absa Group is considering upgrading its Nigerian representative office to a full merchant banking operation, a step that would give the bank direct access to Africa's largest economy. The move is part of a broader strategy to cut reliance on South Africa, Kenya and Ghana, which generated over 80% of first-half profits.
Absa's Expansion Strategy
Absa Group Chief Executive Officer Kenny Fihla disclosed the plans during an interview with Bloomberg TV, saying the bank was actively "exploring the possibilities of converting into a merchant banking licence" for its Nigerian office.
The push into Nigeria is driven by Absa's need to spread its earnings more evenly. South Africa, Kenya and Ghana together generated more than 80% of the group's profit in the first six months of the year, leaving the bank exposed whenever economic conditions turn rough in any of those three markets.
Fihla was direct about the risk that concentration creates. He said: "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."
He added that the bank's primary goal is to "diversify our revenue streams, both in terms of geographies, in terms of business lines, but also in terms of client segments."
What a Merchant Banking Licence Would Mean
A merchant banking licence in Nigeria would allow Absa to take corporate deposits and offer lending, investment banking and project finance services to clients in the country.
Entering Nigeria at a fuller capacity would put Absa up against well-established rivals. Fellow South African financial institutions Standard Bank Group and FirstRand already operate there, as do major Nigerian lenders including Access Holdings, Zenith Bank and First Bank of Nigeria.
Nigeria's Growing Appeal
Nigeria has grown more attractive to foreign financial institutions as President Bola Tinubu's government pursues investment-friendly policies aimed at supporting economic growth.
Separately, Absa confirmed it has increased its ownership in its Kenyan subsidiary to 72%, falling short of an earlier target of 85%. Charles Russon, Absa's group executive for Africa regions, said the bank still wants to push that figure higher when the right opportunity arises.
Russon said: "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."
Together, the Nigeria and Kenya developments signal Absa's commitment to building a broader African presence while reducing the outsized influence that a handful of its existing markets currently have on overall group performance.
