Fitch says Pan-african push to lift South African Bank growth
Adding diversification by expanding in Africa could enhance South African banks' earnings prospects in the longer term, Fitch Ratings says. But a significant increase in exposures to other African markets could weaken their credit profiles.
The four major universal banks - Absa, FirstRand, Nedbank and Standard Bank - are all geographically concentrated in the domestic market by assets and earnings. Developing a panAfrican franchise will help compensate for more subdued domestic growth due to the relatively saturated lending market and weakened growth prospects in South Africa. The financial crisis and its impact on economic prospects in many economies means the banks' search for growth will focus on Africa rather than further abroad.
Nedbank and FirstRand are the most likely candidates looking for acquisition opportunities, as they have relatively less exposure outside of their home market. Both banks have increased M&A activity and organic investment in the rest of Africa.
Nedbank's alliance with Ecobank, the panAfrican banking group, provides it with access to 35 countries in Africa. Nedbank has an option to convert a loan it has made to Ecobank into a 20% equity stake. FirstRand is close to completing its purchase of a 75% stake in Merchant Bank Ghana, opened a merchant bank in Nigeria last month, and is also actively looking to acquire a small bank there. Standard Bank (with operations in 16 African countries) and Absa (12 countries and majority owned by UK's Barclays) have a greater presence on the continent, especially in the sub-Saharan region.