Nedbank plots expansion in Africa with R12bn war chest

Currently, over 90% of Nedbank’s profits come from South Africa, but the bank has set an ambitious target to generate just under half of its earnings from other African markets within five to ten years — a leap from the current 9.2%.

Nedbank Group is setting out to reinvent itself across the African continent as it looks to reduce its dependence on South Africa and nearly quadruple its profit from other African markets over the next decade.

Armed with a war chest of R12 billion ($662 million) in excess capital sitting on its books by end of June, South Africa’s fourth-largest lender by assets has mapped out a strategy to build scale in booming sectors such as natural resources and renewable energy. The bet is that these opportunities across the continent will drive a transformative shift in its revenue mix.

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Currently, over 90% of Nedbank’s profits come from South Africa, but the bank has set an ambitious target to generate just under half of its earnings from other African markets within five to ten years — a leap from the current 9.2%.

“We can easily get between 20% to 30%, and even closer to 40% if we grow in the manner that we aspire,” Terence Sibiya, group managing executive for Nedbank Africa Regions, said in an interview. Nedbank will be a different bank by 2029, Sibiya said.

The move reflects a broader pivot by South African banks seeking growth beyond a sluggish domestic economy. Rivals Standard Bank Group, and FirstRand have already carved out substantial operations in East and West Africa.

According to the International Monetary Fund, South Africa’s economy is expected to expand by 1.1% in 2024, while Sub-Saharan Africa’s economy is projected to grow at an average of 3.6% in 2024, with a forecast of 4.2% in 2025. The disparity is significant, with Sub-Saharan Africa growing about 3 to 4 times faster than South Africa.

Nedbank, with subsidiaries in Eswatini, Lesotho, Mozambique, Namibia, and Zimbabwe, as well as representative office in Kenya, is also leveraging its 21% stake in Ecobank Transnational to extend its reach in West Africa.

Despite this footprint, Sibiya acknowledges that Nedbank’s operations are “sub-scale” and must grow to compete effectively.

“In the five existing territories, there’s definitely a massive focus now on growing scale and getting to what we believe is a greater market share of the profit pools there,” he said.

However, expansion into other African markets comes with challenges, including political and regulatory risks and currency volatility that could squeeze profit margins.

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The bank’s strategy targets high-growth sectors. It is deepening its presence in Namibia, where mining and green hydrogen projects are surging, and Mozambique, with its promising liquefied natural gas sector. In Kenya, Nedbank is considering an an investment banking product that will help it tap into the region’s renewable energy, and infrastructure finance needs throughout the East African community.

Further, it is mulling adding a wealth management division to its Kenya unit, as well as setting up a fund that focuses on women-led small businesses in the region. A decision on the two initiatives is likely within 18 to 24 months, Sibiya said.

“We are confident that given our current skill-set and areas of expertise that we hold in our arsenal, growth on the continent presents a massive opportunity,” Sibiya said.

© 2024 Bloomberg

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