Absa’s senior executives spent three days in Kenya last week meeting regulators and business executives as the South African lender keeps a keen eye on acquisitive opportunities in the East African nation.
The visit included a stopover in Zambia where the delegation met President Hakainde Hichilema.
Consolidation in the banking sector in East Africa’s largest economy has been heating up since the government introduced legislation that sharply increased the minimum capital requirement for lenders.
Group CEO Kenny Fihla was accompanied by Charles Russon, the group executive for Africa regions at Absa, who is expected to play a leading role as the lender moves to diversify its earnings. It is looking to increase an already decent footprint in Kenya and in so doing reduce its dependence on South Africa and Ghana.
Absa is said to be actively considering several acquisition options, looking to expand its lending capacity, while also targeting households and small businesses.
Russon told Business Day that Kenya and the broader East Africa region are attractive to Absa for several reasons, including that they are delivering GDP growth above 5%.
“Kenya is identified as a priority growth country within Absa’s Africa regions portfolio due to its scale, influence and diversified economy,” Russon said.
“The country has a strong entrepreneurial spirit, vibrant SME activity, and fast-growing sectors such as agriculture, infrastructure, trade corridors, energy, and the public sector.”
Target practice
When asked if Absa was looking for acquisitive opportunities in Kenya, Russon said that will be in play should the right deals arise.
“We note the recent regulatory requirements for increased capital for banks in Kenya and anticipate some market consolidation. We would therefore always be interested should the appropriate opportunities present themselves,” he said.
The Business Laws (Amendment) Act, adopted by Kenya’s parliament in December 2024, increases the minimum core capital requirement in annual increments to KES3bn (R376m) at end-2025 and eventually KES10bn at end-2029 from KES1bn previously.
The new requirements have opened the door for industry consolidation, with deep-pocketed South African banks monitoring developments closely.
Nedbank was first out of the starting blocks with its proposed purchase of a controlling stake in NCBA — a lender that Standard Bank was also courting — for R13.9bn.
The 14 largest banks in Kenya represent 87% of sector assets. The remaining 17 banks, which together account for just 7% of sector assets, are unlikely to comply with the new capital requirements through earnings retention alone due to their large capital shortfalls and weak profitability, according to Fitch Ratings.
Absa already operates a Kenyan subsidiary with an asset base of $4.29bn. However, the group owns about 65% of its Kenyan subsidiary, while it is assuming 100% of the risk.
Russon could not be drawn on how the bank plans to remedy that anomaly. “We are always optimising our capital efficiency and therefore continuously exploring ways to achieve this,” he said.
The trip by Fihla and Russon comes just weeks after Standard Bank’s top brass descended on the country to meet banking officials, including the country’s central bank governor, Kamau Thugge.
As part of its push to grow its East Africa portfolio, last year Absa Uganda acquired Standard Chartered Bank Uganda’s wealth and retail banking business portfolio.
Heading east
Russon said Uganda and Tanzania also offered a compelling business proposition for Absa.
“This is about continuing to grow our market share and entrenching our portfolio in a key region like East Africa. Uganda and Tanzania offer opportunities with GDP growth above 5%, supported by strong performance in multiple sectors.”
In Tanzania, Absa owns two banks, which are looking to consolidate.
“Tanzania is an important market to Absa, and we will share updates at the appropriate time,” Russon said.
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