Absa, which announced a shake-up to its organisational structure two months ago, is looking to grow its corporate and investment banking (CIB) franchise in the rest of Africa by increasing earnings in the markets where it already operates and expanding into new territories.
The operational revamp Absa announced on June 30 saw it expand from two business clusters to five with the lucrative CIB unit being renamed CIB Pan-Africa, a clear indication of where it sees its future growth prospects. While SA still accounts for 69% of the CIB Pan-Africa unit’s headline earnings, which reached R4.28bn in the six months to end-June, CEO Charles Russon says he wants the division to live up to its new moniker by growing earnings from other parts of the continent significantly in the next three or four years.
“We see the opportunity north of our border as greater at this present time given some of the uncertainties in SA,” Russon tells Business Day in an interview. “We want diversification away from SA. That does not mean that we want SA to shrink; we just want to see our other markets playing a more significant part.”
By focusing the CIB unit’s growth on the rest of Africa, Absa is clearly looking to replicate and challenge Standard Bank’s dominance on the continent where its own corporate and investment banking division earns healthy fees from activities such as M&A deal structuring, financial markets trading and providing banking services to large corporates. Absa is also finally in a position to focus on growing its CIB Pan-Africa business now that the group has been untangled from Barclays.
Absa Capital, as the CIB unit was then known, was hugely affected by Absa’s three-year separation from Barclays from mid-2017 to mid-2020. The unbundling left Absa unable to leverage the London-based investment banking capabilities and international corporate relationships of its former UK parent, meaning it had to rebuild that capability in a very short time.
“It was clear that we needed to develop our own strategy in late 2017 as we began the separation from Barclays,” says Russon. “That saw us establish a European office in London and a North American office in New York. This was essential as about 15% of our revenues came through those corridors as a result of the Barclays relationship with global clients doing business into Africa.”
Russon says Absa is now looking to establish a CIB office in Asia to serve international corporates, particularly from India, China and the Middle East, who are eager to invest in Africa. The unit is also eyeing expansion in Angola and looking to bulk up its presence in Nigeria, where it only has a representative office and broker licence, while simultaneously developing its most important CIB franchises — Zambia, Kenya, Mauritius and Ghana — into regional growth hubs.
“If you look at our competitors, Angola is a significant market for them,” says Russon. “Nigeria is another market where we are building — and is now a material market in terms of our CIB franchise. You ultimately want to deploy your capital in a manner that you get the right returns based on the client franchise opportunities you can see.”
While Russon says he ideally wants Absa’s CIB unit to have “as great a footprint as possible” in the rest of Africa, he is quick to add that he does not intend to “plant flags in each country”. But he wants the unit to have a sufficient on-the-ground presence to adequately provide banking services to corporate clients operating across the various African geographies.
Thorny issue
“It’s great if you can bank a customer in SA or Zambia but if they want to do business in markets where you do not have a presence they’re going to say, ‘hang on, you can’t fully support our needs’,” he says. “That’s why it becomes important that you’re banking as much of that client ecosystem as possible.”
One thorny issue Absa will have to face when expanding into the rest of Africa is its approach to fossil fuel projects. Rival Standard Bank is already taking considerable heat for its role in the controversial East African Crude Oil Pipeline, so any expansion into carbon-intensive sectors is likely to attract similar controversy.
But having already pledged to avoid funding new coal-related projects Russon thinks Absa’s CIB division can navigate the PR minefield that funding decisions have become. To do that will require an ESG policy that strikes a careful balance between helping countries grow their economies while remaining cognisant of global ESG sensitivities.
“We want to help countries achieve an outcome that is more sustainable,” he says. “Where there is dependency on fossil fuels today, we want to work with those countries to migrate them to more sustainable solutions in due course, but it’s a fine balance to navigate.”
In SA the main focus for Absa CIB Pan-Africa will be power generation, particularly from renewable sources. The bank has already committed to providing R100bn in ESG-related financing by 2025. Russon says the bank also stands ready to work with Eskom to address its power woes by providing funding for existing plants as well as its likely transition to more sustainable alternatives.
Heavy users
“Public private partnerships are key to resolving SA’s power issues,” he says. “That doesn’t mean we’re going to finance all Eskom’s requirements, but we want to work with them and government to help put in some of the infrastructure that can result in a more sustainable outcome for the country.”
Russon says Absa also wants to help heavy users of Eskom’s coal-fired power, such as mines, to transition to more sustainable solutions, though figuring out how independently produced power can be fed into Eskom's grid remains a challenge.
However, in the conversation with him at Absa’s Sandton office it is clear that he sees the evolution of the bank’s CIB franchise from an SA-focused business to one with continent-wide ambitions as a major part of his mandate.
“We’re a Pan-African CIB business, where product and client coverage teams have a Pan-African responsibility,” he says. “We believe in the continent, we believe the opportunity is there and we want to be part of delivering that opportunity.”
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