South African Nedbank’s $856m NCBA deal heightens risk exposure, Moody’s warns

Nedbank Group’s proposed acquisition of a 66 percent stake in Kenya’s NCBA Group, valued at 13.9 billion rand ($855.5 million), would increase the South African top lender’s exposure to higher-risk African markets, Moody’s has warned.

In a statement on Friday, the global credit rating agency said the transaction, announced last week, would raise Nedbank’s exposure to jurisdictions with higher intrinsic credit risk than South Africa, reflecting greater sensitivity to macroeconomic volatility, small and medium-sized enterprise (SME) lending risk, and foreign exchange movements.

“The 66 percent acquisition of NCBA Group would increase Nedbank’s exposure to jurisdictions with higher intrinsic credit risk than in South Africa,” the statement said. “This includes higher sensitivity to macroeconomic volatility, SME lending risk and foreign exchange movements.”

However, the agency noted that these risks are partly mitigated by NCBA’s established local risk management capabilities, alongside Nedbank’s conservative underwriting standards and group-level oversight. As a result, Moody’s added the deal does not signal a material shift in Nedbank’s overall risk appetite and would modestly reduce its geographic concentration.

NCBA is one of Kenya’s largest banking groups, with operations across Kenya, Uganda, Tanzania and Rwanda. The lender also offers digital and cross-border services in Ghana and Côte d’Ivoire and serves more than 60 million customers across its markets.

Moody’s said that the impact of the acquisition on Nedbank’s capital position would be manageable. While consolidation would increase risk-weighted assets, the American based firm noted that the limited cash component of the transaction would reduce balance sheet strain.

“We expect the effect on Nedbank Group’s capital position to be manageable,” it added. “The limited cash component of the consolidation reduces balance sheet strain, while the equity-settled portion supports capital preservation. Strong internal capital generation provides an additional buffer to absorb the transaction without pressuring regulatory capital ratios.”

Under the proposed structure, Nedbank will pay 20 percent of the purchase consideration in cash, with the remaining 80 percent settled through newly issued Nedbank ordinary shares listed on the Johannesburg Stock Exchange. The valuation is based on a Nedbank share price of 250 rand.

The bank currently operates a representative office in Kenya. If completed, the deal would give the group a significant foothold in East Africa through NCBA’s network of 122 branches across the region.

Moody’s views the acquisition as credit positive overall, citing improved earnings diversification beyond South Africa and stronger exposure to higher-growth East African banking markets.

While the transaction is expected to have a modestly dilutive impact on earnings in the first year due to consolidation effects and transaction-related costs, the agency said it should support stronger loan growth, net interest income and fee-based revenues over time.

Nedbank expects to complete the transaction in the second half of the year, subject to regulatory approvals in South Africa and Kenya.

Bunmi holds a degree in Economics from the University of Lagos and has over eight years of experience in content writing and journalism.

Her career spans roles as a financial and business journalist at BusinessDay Media and TechCabal, and as Head of Research at SBM Intelligence, an Africa-focused market intelligence and strategic consulting firm.

She also served as Editor at Finance in Africa, a subsidiary of Businessfront and is currently Assistant Editor, Finance (Africa), at BusinessDay.

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