Nedbank will deploy its capital in pursuit of bolt-on acquisitions to scale up its existing businesses in SA and neighbouring countries instead of chasing mergers and acquisitions in East Africa, said group CEO Jason Quinn.
The Nedbank boss gave Business Day more clarity on the bank’s pivot to the Southern African Development Community (Sadc) and East Africa after it exited its minority stake in Ecobank Transnational, and by extension the West African market.
He quashed speculation that the lender might look at buying a bank in Kenya, East Africa’s economic powerhouse, where it has a representative office.
Quinn, who took over the helm at the bank just more than a year ago, said the group was definitely looking to put the East Africa market to full use in its key competencies, such as infrastructure financing.
Still, the lender would not enter the retail banking space in the region, though it would be a very Sadc entity for the “foreseeable” future.
“We are not about to go and buy a bank. This is not part of our thinking. We will not be a retail bank in Kenya, for example,” Quinn said.
“In Kenya, there are things in corporate and investment banking we are good at, like infrastructure finance in energy, resources, commercial property, fixed income and currencies that we will do there. We might need to change our licences, and a bit of capital and a few more people on the ground,” he said.
“In essence a lot of those types of opportunities will be in hard currency and will be booked on our SA balance sheet. We are not going to put capital in Kenya. We will only play in areas where we are strong and have a right to compete.”
Quinn said the lender would be prudent in its allocation of capital.
The bank has already made two bolt-on acquisitions over the past two years: management business Eqstra Investment from enX; and iKhokha, one of the fastest growing fintech companies in Africa. Nedbank also has not closed the door on further enhancements to its Sadc portfolio.
“We keep some optionality. At the moment we think there are huge growth opportunities. If that growth doesn’t come through at the level we think it might, we have enough capital to do share buybacks,” Quinn said.
“We sit with a lot of capital: 13.1% common equity tier 1 [a key measure of a bank’s financial muscle] whereas our board target range is 11%-12%. We have held a lot of capital as a sector for defensive reasons coming out of Covid-19 — risk in portfolios and credit risk was high then and so we had a lot of capital allocated for defensive reasons,” he said.
“Those defensive reasons are much less relevant today. So our priority is to grow our balance sheet and lending portfolio. That includes the whole of Sadc.”
Nedbank has recently undergone a strategy refresh, with growth in Sadc and CIB-led expansion to East Africa top of mind.
Nedbank still derives much of its revenue from SA. According to the group’s 2024 annual report, the company’s SA franchise contributed 90% of the group’s R1.4-trillion of assets and 79% of R16.9bn headline earnings in financial year 2024.
Quinn said the SA franchise now accounts for 96% of the group’s earnings after the sale of its 21% stake in Togo-based Ecobank Transnational.
Nedbank was comfortable with the heavy reliance on SA, he added.
“We are comfortable having a large chunk of our earnings coming from SA because of the sovereign risk that exists. Let’s use Standard Bank as an example: their return on equity is at 19%. Their cost of equity is much higher than ours, because all our risk is in one currency [rand], in a capital base we own and control,” Quinn said.
“If you operate multi banks across the continent, you take deposits and invest in bonds in local currency and build up huge capital bases in local currency and you battle to extract the dividends into rand,” he said.
“It doesn’t matter whether you’re an associate like we had with Ecobank Transnational or a controlling subsidiary; you end up having to run high capital ratios and high cost of equity.”
Standard Bank’s rest of Africa portfolio contributes more than 40% to its earnings, while Absa gets a third of its earnings coming outside its home market.
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