Absa Group has stepped up its pan-African expansion strategy in search of a larger market share and profits. Following its 2017 separation from Barclays, the bank is consolidating its presence across African countries, such as Zambia and Uganda, via buyout deals.
Absa Group CEO Kenny Fihla sat down with the Business Daily to share the lender’s plan for the Kenya acquisition and its quest for a larger portion of retail banking.
What brings you to Kenya? Whom are you meeting and what conversations are you having?
Three things have brought me to Kenya. The first is to interact with the Absa team here and get to understand the nature of the business, where the opportunities are and how we could, from a Group point of view, further support our local management team and the business here to capture the opportunities present.
The second is to interact with the regulators and policymakers to reaffirm our commitment to Kenya, as well as to try to understand what their priorities are so that we can better align our own resources to support those priorities.
The third thing is looking beyond Kenya because, as we look at the growing East African region, we need to ensure the Kenyan business is robust enough to provide the platform through which you could play a far more meaningful role beyond this country.
It’s been just about seven months since you took over the leadership of Absa Group. How has it been so far?
It has been exciting. When I joined Absa, I knew that this organisation had massive potential. As I interacted with the staff and the customers, I began to appreciate the size of that potential, and it is huge.
We have to stabilise the leadership at a Group level, which is something that we have already done. We have to make sure we align the organisation behind a common purpose, which is about obsession with the client. Absa has a massive competitive advantage given its history and the size of its balance sheet.
This market is going through recapitalisation of the banking sector, with core capital requirements having an annual increase through 2029. Do you see an opportunity for inorganic growth through an acquisition?
We are always on the lookout for opportunities, be they organic or inorganic, but the regulatory environment must be conducive and positive for that.
Fortunately, Kenya and many of the countries in East Africa have a very conducive environment for us to be looking at inorganic growth. We have not yet come across anything, but we continue to look, we continue to explore, and at the right time, we will do what is necessary to ensure that our business grows.
This market is undergoing a retail rush where traditionally corporate and investment banking-focused players, such as Absa, are increasingly reaching out for the retail market. How do you assess your progress in that area? Do you consider Absa a scale or niche player?
Ultimately, we want to be a scale player because banking is about scale. If you are too niche, your relevance to the economy and your ability to make a big impact tend to be limited, and so we would want to grow on scale.
We understand that we cannot get there overnight and have to be selective around which client segments we want to play in and then create scale within a defined area before using that platform to move to the next set of opportunities.
As you heighten your appetite for the retail market, how do you manage the elevated credit risk factor? Are you not bothered by the increased exposure to deteriorating asset quality?
Those are indeed very valid concerns, but the retail market is very attractive to Absa Bank for a number of reasons. First, it helps us to gather liabilities or liquidity that is required for us to lend to clients.
That liquidity is viewed favourably by regulators and consequently makes it easier for us to lend cheaply. That is the reason why everyone would want to access that segment of the client base. Secondly, you cannot call yourself an African bank if you are not relevant to the people who live in Africa and make sure that people have access to the financial system.
Some argue that Africa’s banking sector is lagging as far as the evolution of credit scoring and profiling goes. They say it has remained frozen in time and is too collateral-based. Is this a fair assessment?
I share that concern, but I don’t think collateralised-based lending is something that will disappear.
Ultimately, a bank needs to measure the right metrics for it to determine creditworthiness using models that have been proven in different contexts.
Most credit models are backwards-looking and are very good if a borrower has done well in the past.
The same models are terrible when one is a new entrant into the banking system and doesn’t have much financial history. The good thing is that this is where big data and information that is outside banking becomes absolutely useful in understanding consumer behaviour.
