Ratings agency Moody’s says Nedbank’s decision to dispose of its stake in Ecobank Transnational Incorporated (ETI) for $100m is credit positive for the group, as it rolls out its growth strategy under new CEO Jason Quinn’s watch.
The agency said the transaction, which is expected to be concluded before year-end, provides the lender with an opportunity to improve profitability by refocusing its strategy for the rest of the continent (excluding SA) on growth areas, including the East African region and the Southern African Development Community.
Moody’s said unlike its domestic peers, Nedbank has historically focused its strategy on the SA market, with a strong presence in the corporate and investment banking segment as well as in the retail secured lending segment.
“While we expect the group’s exposure to the rest of the continent to remain relatively modest, it will increase as the group grows its corporate and investment banking footprint in East Africa, and explores complementary inorganic growth on the continent,” Moody’s said.
“The group’s total assets allocated to the continent accounted for 3.5% of its assets by year-end 2024,” it said.
“The group’s investment in ETI did not generate anticipated benefits because of the challenging operating environment in Nigeria, where ETI has operations, the exit of various SA clients from Nigeria that limits cross-selling opportunities, and the failure to realise anticipated synergies between Nedbank and ETI.”
The $100m divestment of a 21.2% stake in ETI, which was acquired for $500m (or about R9bn now), comes after a decade that delivered R400m in dividends against R6.9bn unrealised losses and a $293m impairment.
The exit from ETI marked the second major transaction by Nedbank under Quinn, after the purchase of iKhokha (R1.65bn), one of Africa’s fastest growing fintech companies, as the lender looks to grow its SME lending market share.
Moody’s also weighed in on the iKhokha transaction.
“There is limited public information on the financial position of iKhokha, but we expect this acquisition to have negligible short-term effect on the group’s liquidity position, given that the purchase consideration is relatively small (in comparison to the group’s net profit and liquid assets) and lower than the upcoming proceeds from the ETI stake sale,” the agency said.
Quinn, who took control of the group just more than a year ago after the retirement of Mike Brown, wasted little time in restructuring the group, shaking up the lender’s retail and business banking divisions.
The restructuring led to the creation of business and commercial banking, a juristic-focused cluster that will cover SMEs and commercial clients.
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 2024.
Quinn last week told Business Day the SA franchise now accounted for 96% of the group’s earnings after the sale of its 21% stake in ETI.
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 … all our risk is in one currency [rand], in a capital base we own and control.”
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