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Absa signs $497m deal to boost lending in Africa

World Bank agency to issue guarantees.
Image: Moneyweb

Absa Group Ltd. has entered into an agreement with the Multilateral Investment Guarantee Agency to bolster the bank’s lending capacity in Ghana, Kenya, Mauritius, Mozambique, Seychelles, Uganda and Zambia.

The World Bank’s MIGA will issue guarantees of $497 million, valid for as long as 15 years, to Johannesburg-based Absa, the company said in a statement on Tuesday.

This will help shield Absa from risks associated with the mandatory capital reserves it is required to hold with various central banks. It will free Absa’s subsidiaries in the region to provide more financing to corporates, small- and medium-sized enterprises and projects that will benefit the climate, Absa said.

© 2020 Bloomberg L.P.
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”Anybody can win, unless there happens to be a second entry”

George Ade (1866-1944)

And the status quo remains unchanged. Not a single cent was spent in Western Africa and places Angola and the DFC must be wondering why – clearly not part of their strategy.
They will be competing in a totally overbanked region like Kenia, Ghana, Mozambique, and Seychelles, where other International Banks have been well entrenched and rules the market.
Absa won’t commit to ‘’ mom and pop shops’’ and will mainly commit balance to a totally overbanked Multinational Companies – Most of these deals subject to Letters of credit and bank guarantees!
Which begs the question – what happened to their big ‘’fanfare’’ announcement that Society Generale will be their partner and bookmaker in their African ventures?

Hopefully ABSA is aware of the main risks for any bank to enter markets in African countries, such as:
– unstable governments and economic/political environments.
– regular and large government budget deficits and the negative effect thereof on the banking system
– the weak private sector and possible over-banking in such areas.
– currency risks (exchange rate volatility, high inflation and currency shortages).
– low trust by markets and community in any form of banking system.
– dealing with high-risk clients on a daily basis.

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