Investec declares war in corporate midmarket

Investec has launched a commercial banking unit that bundles private banking, corporate lending and advisory services under one roof in a strategic bid to prise away small business owners from mainstream banks and reshape competition in the R600bn-plus loan pool.

The Anglo-South Africa niche private-banking and wealth management group is looking at amassing about 1,500 corporate midmarket segment companies a year until 2030, a market in which the company said it has the capabilities to win.

Overall, the lender aims to build a bespoke proposition for its clients and win market share in the lucrative corporate midmarket where players in the space are reporting a return on equity of about 30%.

The move, pitched as “One Investec”, recasts Investec from a boutique private banker into a selective commercial challenger and puts pressure on FirstRand, the largest player in the sector, to respond.

“The midmarket is a high-growth market and important to economic growth in the markets in which we operate,” CEO Fani Titi said on Thursday, speaking from London where the group outlined its plans.

“We have an opportunity to build and scale businesses that will contribute meaningfully to our business and the economy.”

Investec plans to grow the corporate midsize by 7,000 businesses by 2030, to complement its base of 3,000. The target is to grow revenue in this segment in South Africa to R3.8bn by 2030 from R1.7bn now.

Read: Investec reports ‘resilient’ first half in tough macro-economic environment

The lender will target businesses with annual revenues of R30m-R1.5bn, with a bias toward businesses with a turnover of at least R100m, and would be selective in onboarding those businesses with a turnover of less than R100m.

“Investec believes that its niche is companies with a turnover of R100m to R1.5bn, representing an opportunity set of 220,000 clients,” said Nick Riley, head of corporate midmarket business in South Africa.

“The upside to our 10,000 target is the client acquisition opportunities that reside within the bank. All our existing clients have told us that they want to do more with us. They tell us if we can do for them what we do in personal banking, they would move their business banking tomorrow.”

According to Investec, there are about 525,000 businesses in South Africa with a turnover of R30m-R1.5bn.

The lender said there are 40,000 businesses that rake in R300m-R1.5bn a year.

Titi admitted that it is late in the day for Investec to try and win market share in this space and that Investec is underrepresented in a growing market and is well-positioned to gain market share.

“This is an expansion of our capabilities to fully service our clients in the mode of One Investec. If you look at Investec and where we are, we are leading private clients and a leading corporate and investment banking business, and we already have a number of clients in the corporate midmarket,” he said.

“We think it is time for us to get into this sector and gain market share that would appear small relative to others, but this is consistent with our approach to niche markets and high levels of service. We are not trying to go very wide. We will still follow our DNA of selective client segments.

“We know how to build niche businesses and how to work with private banking style businesses, and we are bringing this to this particular segment. The idea is to close the gaps in our current offering.”

Our goal is to deepen relationships, deliver sharper solutions and act with greater agility — building a bank that not only meets the evolving needs of SA’s mid-market corporates but anticipates them.
— Nick Riley,head of corporate mid-market business in SA

Investec’s strategy to grow in the SA midmarket corporates will face stiff competition, as its domestic rivals are also targeting midsized corporates for growth.

FNB is the dominant player in the space. Nedbank has also restructured the business to place great emphasis on midsized corporates, with the lender targeting a market share of 25%. To this end, earlier this year Nedbank prised away FNB Business CEO Andiswa Bata, who joined it as managing executive of its business and commercial unit.

Standard Bank and Absa are also big players in the market.

In the UK, Investec said it would build on its established midmarket credentials by making a significant investment in transactional banking, a dedicated team of relationship managers, and intuitive digital platforms.

“This will extend its integrated offering and position the bank to serve an underserved segment of more than 60,000 companies in the UK. By financial year 2030, the bank aims to provide relationship banking to 1,000 mid-market businesses,” the group said.

Andy Hart, head of corporate banking at Investec UK bank, said, “We see a clear strategic growth opportunity to extend our offering and bring a private client banking experience to UK mid-market corporates.”

Bank of America in May said it expected that Investec’s expansion blueprint in mid-market corporate and private banking client segments would add at least £750m in revenue by 2030.