Absa Group plans merchant bank licence for Nigerian office

South African lender Absa Group is considering upgrading its Nigerian representative office into a full merchant banking operation. Chief Executive Officer Kenny Fihla disclosed the plan during an interview with Bloomberg TV, saying the bank is actively exploring the possibilities of converting into a merchant banking licence.

The move would give Absa direct access to Africa's largest economy and allow it to take corporate deposits, offer lending, investment banking and project finance services to clients in Nigeria.

Why Absa is spreading its bets

Absa's push into Nigeria is driven by the need to spread its earnings more evenly. South Africa, Kenya and Ghana together generated over 80% of the group's profit in the first six months of the year. That leaves the bank exposed whenever economic conditions turn rough in any of those three markets.

Fihla was direct about the risk: "The dependence on two or three big markets is fine if you've got tailwinds, but as soon as you experience some headwinds, you are vulnerable to massive shocks."

He added that the bank's primary goal is to "diversify our revenue streams, both in terms of geographies, in terms of business lines, but also in terms of client segments."

Competition and Kenya stake

Entering Nigeria at fuller capacity would put Absa against well-established rivals. Fellow South African institutions Standard Bank Group and FirstRand already operate there, as do major Nigerian lenders including Access Holdings, Zenith Bank and First Bank of Nigeria.

Nigeria has grown more attractive to foreign financial institutions as President Bola Tinubu's government pursues investment-friendly policies aimed at supporting economic growth.

Separately, Absa confirmed it has increased its ownership in its Kenyan subsidiary to 72%, falling short of an earlier target of 85%. Charles Russon, Absa's group executive for Africa regions, said the bank still wants to push that figure higher when the right opportunity arises.

Russon said: "Over the next couple of years, when the time is right, we will try to increase further. Ideally, we would like to have as big a position as possible."

Together, the Nigeria and Kenya developments signal Absa's commitment to building a broader African presence while reducing the outsized influence that a handful of existing markets currently have on overall group performance.

What this means for Nigerian businesses

A full merchant banking licence from Absa could deepen competition in Nigeria's corporate banking space, giving businesses more options for project finance, investment banking and large-scale lending. It also points to continued foreign investor interest in Nigeria's financial sector under the current reform push.