BIG READ: All roads lead to East Africa for growth-hungry SA banks

Across the continent, the banking sector’s fortunes rise and fall not with asset classes but with Africa’s endlessly renewable supply of big picture ambitions. Nowhere is this optimism more evident than in SA’s banks’ latest march eastward. 

Standard Bank, Absa, FirstRand and Nedbank have set their sights on East African countries: Kenya, Uganda, Tanzania and, with patience, Ethiopia, a move set to inject major foreign direct investment into the region from the asset-rich Johannesburg Big Four titans. 

Their strategic pivots are less a search for new deposits than a wager on the next act of the continent’s economic drama, spurred by regional integration, banking reforms, youthful demographics and a multibillion-rand infrastructure gap that routinely overwhelms even the hardiest of credit committees.

All these structural forces make M&A probable, especially in Kenya, the crown jewel in East Africa’s economy, where new capital rules will pinch smaller players. Kenya could offer instant scale to SA’s lenders, which have for years made their money in Africa’s largest economy, where large M&As have become near impossible due to SA’s competition regime.

One of the pull factors that make East Africa a desirable investment destination for SA’s banking majors is that this is one of the fastest urbanising areas on the continent, coupled with a huge population of about 500-million and the continent’s most arable land.

That ease of movement between East Africa and its regional neighbours is adding to the sense of bullishness and optimism in the region, as business is a function of mobility.

Standard Bank’s East Africa thesis

Standard Bank CEO Sim Tshabalala, who presides over an empire with R3.4-trillion in assets, is, by the dry standard of the professions, almost effusive about East Africa’s prospects.

“What excites me most is the tipping point we’re approaching. The continent has the minerals the world needs. We’re now building the infrastructure to extract and move them. But we must go further — develop refining capacity, regulatory frameworks, and beneficiation strategies,”  Tshabalala said. “East Africa is the shining light in all of this. If this doesn’t excite you, I’m not sure what will.”

Africa’s largest bank by assets, which already has a sizeable presence in East Africa, where it drew 21% of its earnings in the six months to end-June, is looking to scale up its operation in the region, with possible M&As on the cards.

The continent has the minerals the world needs. We’re now building the infrastructure to extract and move them. But we must go further — develop refining capacity, regulatory frameworks, and beneficiation strategies.

—  Standard Bank CEO Sim Tshabalala

Standard Bank is already the third-largest banking group in the region, with representative offices in South Sudan and Ethiopia. 

“But we’re still subscale in Kenya, and we’re looking to grow — organically through branches, ATMs, and distribution, and inorganically where the pricing and risk make sense,” Tshabalala told Business Day, adding the asset valuations were “expensive” at the moment.  

His sentiment was echoed by his finance chief, Arno Daehnke, who pointed to the region’s typical 5%-6% real GDP growth rate.

“We would like to grow faster organically and via inorganic strategies we are pursuing. We will let you know once we have more specific inorganic opportunities.”

Tshabalala also linked East Africa’s allure to Standard Bank’s broader continental strategy, citing the lender’s latest move to set up a representative office in Egypt.

“Our office there will enable us to link our African and multinational clients more closely to the growing trade and investment corridor between Africa and the Gulf Co-operation Council countries,” Tshabalala said.

“Egypt forms an important part of the nexus between the Gulf Co-operation Council and East Africa. Much of the excess capacity, for example, in construction that is in Egypt gets redeployed into East Africa. The Gulf Co-operation Council states are becoming an increasingly important part of the economic infrastructure of Africa.”

Absa’s measured march east

Born of a post-Barclays identity crisis and repeatedly rebranded in various shades, Absa now espouses a kind of pragmatic pan-Africanism. Its footprint in East Africa is neither the most flamboyant nor the most tentative, arguably a function of 100 years’ worth of brand stickers applied in Kenya, Uganda and Tanzania.

New CEO Kenny Fihla’s first stop after taking over the reins at the Red Bank in July was East Africa, where he toured Uganda and Tanzania to strengthen relationships with clients, colleagues and stakeholders across the region. Fihla on Monday said East Africa expansion presented a “huge” opportunity for Absa.

With nearly 5,000 employees across Kenya, Uganda and Tanzania, Absa is already embedded in the region’s financial fabric, but sees further opportunity in infrastructure finance, consumer banking and trade facilitation beyond Kenya.

Chuene Setati, head of East and West Africa, trade and working capital sales at Absa Corporate and Investment Banking, said Tanzania and Uganda had been consistent in their growth ambitions in the past few years.

“East Africa also represents a large and rapidly expanding consumer market. Rising middle-class populations, urbanisation and increased purchasing power offer immense potential for consumer goods, retail and services sectors,” Setati said.

“And the demand for improved infrastructure in East Africa is high. This creates substantial investment opportunities in sectors like transportation (roads, railway, airports), energy infrastructure (power plants, transmission lines) and urban development.”

The nexus between Gulf States and East Africa is also not lost on Absa, which plans to open an office in Dubai next year to serve African clients seeking Gulf business opportunities and vice versa.

FirstRand and Nedbank: Waiting for the right deal? 

For FirstRand, worth R440bn on the JSE, Kenya, where it opened a representative office in 2011, presents an appealing proposition.

The Mary Vilakazi-led bank, the largest on the continent by market value, is not ready to play a more prominent role in Kenya, with the country’s banking sector ripe for consolidation after authorities last year announced a tenfold hike in minimum core capital requirements for lenders over the next five years.

Ratings agency Fitch said the new rules would squeeze smaller lenders in Kenya, which has about 17 such banks. That opens the door for foreign players with deep pockets and patient capital.  For FirstRand, which earns the bulk of its profit at home, Kenya could rebalance its continental footprint.

“Smaller banks struggling to meet the requirements may choose to merge, or they may be acquired by second-tier or foreign banks looking to strengthen their market share or enter the Kenyan market,” Fitch said.

Nedbank, meanwhile, is taking a longer view. With strong historic roots in the Southern African Development Community (Sadc) states, Nedbank’s ambitions have now been redirected to East Africa, notably through its corporate and investment banking foothold. It expects plenty of deal-making opportunities in the region. 

The strategy is quietly methodical. It wants to deepen sector-led coverage, target infrastructure and energy finance and pursue M&A opportunities where feasible, all with the intent of raising Nedbank CIB’s contribution to the group’s R72bn-plus revenue from 15% to more than 20% in the medium term.

“Over the longer term, strategic expansion into East Africa aligns with the group’s long-term revenue diversification goals, and work is under way to determine the optimal model for growing our presence in the region,” Nedbank CEO Jason Quinn said.

Achieving a nearly R4bn uplift in CIB revenue with a three-year “medium term” window would be an ambitious organic push backed by high-value deal wins in East Africa, a tough ask for the lender with just a representative office in East Africa.

Still, Nedbank has ruled out any large-scale bank buy in East Africa.

“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 told Business Day. “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.”  

For Nedbank, a successful expansion into East Africa offers the group a way to diversify its income sources away from SA, where it derives a large chunk of its earnings — a key risk with SA’s economy has stalled over the past decade.

Nedbank’s SA franchise contributed 90% of the group’s R1.4-trillion in assets and 79% of the group’s R16.9bn profit in the 2024 financial year.

Regional runway

Under East Africa’s vast skies lies a paradox. Some of the continent’s most fertile soils sit alongside roads that peter out and power grids that sputter. For corporates, the gulf is an invitation, a blank canvas where factories, highways and agribusiness can sprout in tandem with balance sheets.

With more than 500-million people, a median age of 18, East Africa would make even the most jaded asset manager salivate. The region is urbanising fast, with 32% city dwellers in 2205 and projections pointing to 35% by 2030. The dependency ratio is falling, opening a demographic window to translate millions of new workers into new borrowers, savers and policy holders. 

The world’s most energetic construction boom is on display from Addis’ new stock exchange to the expansion of the Standard Gauge Railway and the Lamu Port South Sudan Ethiopia Transport (Lapsset) corridor in Kenya. Across the region, infrastructure projects worth more $750bn are under way or planned, spanning energy dams, digital cities, ports, and real estate megaprojects. 

Banks are central to this drama. Financing public-private partnership (PPP) highways, arranging syndicated loans for transport corridors, and funnelling diaspora and development partner investments into renewables and urban utilities.

What East Africa offers:

• Kenya’s economy is projected to grow at an average rate of 5.8% between 2025 and 2029, according to Deloitte, underpinned by the ongoing digital finance boom, nearly 3-million tourists this year and a push to lift manufacturing’s GDP share into double digits. However, Kenya has not been without its challenges as fiscal concerns remain due to lingering social tensions and the inability to raise tax revenues.
• Tanzania aims to stitch the continent together, with a standard-gauge line to Burundi and an upgraded corridor to Zambia. The country has two major railway projects in its pipeline: the construction of the Tanzania-Burundi standard-gauge railway line and the upgrade of the Tanzania-Zambia railway line. By knitting regional supply chains from Dar es Salaam’s port to landlocked neighbours, Tanzania is courting both logistic champions and project financers.
• In Ethiopia, the newly established Ethiopian Securities Exchange promises to turbocharge foreign direct investment inflows by creating a platform for local companies to raise capital, according to Deloitte. 
• The professional services firm said Uganda’s GDP growth will be mainly supported by a rise in oil exports, which are forecasted to average 6.9% and 7% in 2028 and 2029, respectively. These developments would position Uganda as an important oil exporter and improve regional trade, contributing significantly to the economy. “One of the biggest opportunities for Uganda is that commercial oil production is expected to begin in the fourth quarter of 2025. This is anticipated to increase investments, exports, and government revenues,” Deloitte said.

East Africa is not immune to the political risks familiar to banking strategists. Ethiopia’s post-war peace dividend is counterbalanced by the risk of renewed fragmentation. Global headwinds, the threat of protectionism in the US, commodity price shocks, and ongoing security challenges in Sudan, Somalia and Democratic Republic of Congo (DRC) complete the picture.

Amid all this, the region’s private sector, led by banks and multinationals, is being called on to solve social and infrastructure gaps.

A century in the making

The East African Community’s traces its origins back to the 1905 East African Currency Board — a colonial experiment in monetary unity involving Kenya, Uganda and Tanzania. 

After independence, Kenya’s Jomo Kenyatta, Tanzania’s Julius Nyerere and Uganda’s Apollo Milton Obote rekindled that vision, forging policies that presents a blueprint for the rest of Africa to follow — as the continent grapples to implement the African Continental Free Trade Area (AfCFTA).

“Business is a function of mobility. For me to know that I can make money in Tanzania, for example, I would have to meet someone from Tanzania, start engaging and start talking business,” Setati said.

“One of the first things that came up in the negotiations around the AfCFTA was the idea of making the mobility of individuals between African countries easier. You cannot increase business if it’s difficult for me to even get into your country.”