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Ratings agency Moody’s says Absa’s move to increase its stake in its Kenya business is credit positive for the Kenny Fihla-led group, which is looking to gain ascendancy in the fast-growing East Africa market.Moody’s said Absa’s mooted R4bn deal to hike its exposure in its Kenyan business to 85% from 68.5% carries low execution risk compared with greenfield expansion or entry into a new market. “The additional stake will also allow Absa Group to capture a larger share of the earnings from Absa Kenya, which has strong profitability and growth prospects,” Moody’s said in a note. “We expect the deal to be earnings accretive at the group level over time, supported by Kenya’s favourable macroeconomic outlook and expanding credit demand.(Karen Moolman) “However, the credit benefits are partly offset by increased exposure to higher-risk operating environments outside South Africa. A larger stake in Absa Kenya would increase Absa Group’s sensitivity to macroeconomic volatility, currency risk and regulatory frameworks in East Africa,” Moody’s said.“These risks are mitigated by Absa’s long-standing presence in Kenya, established local risk management capabilities and continued minority listing, which preserves market discipline and governance standards.”Absa last week announced the proposed transaction, which is subject to approval by the Capital Markets Authority of Kenya, reflects the group’s long-term confidence in the country and the broader East African market. Banking sector consolidationKenya is East Africa’s largest economy. Consolidation in the banking sector has been heating up since the government introduced legislation that sharply increased the minimum capital requirement for lenders.The new requirements have opened the door for industry consolidation, with deep-pocketed South African banks monitoring developments closely.Nedbank was first out of the starting blocks with its proposed purchase of a controlling stake in NCBA — a lender that Standard Bank was also courting — for R13.9bn. Moody’s has also endorsed Nedbank’s NCBA deal as credit-positive. The 14 biggest banks in Kenya represent 87% of sector assets. The remaining 17 are unlikely to comply with the new capital requirements through earnings retention alone because of their large capital shortfalls and weak profitability, according to Fitch Ratings.The ratings agency provided further detail on its positive view of the Absa transaction.“The proposed transaction is credit positive for Absa Group because it would increase the group’s exposure to a key growth market within its Africa regions’ portfolio through an established and profitable subsidiary,” Moody’s said.“It would also support Absa’s strategy of deepening its presence in higher-growth African markets and enhance earnings diversification outside South Africa. Kenya is one of Absa Group’s core East African franchises.”As part of its push to grow its East Africa portfolio, Absa Uganda last year bought Standard Chartered Bank Uganda’s wealth and retail banking business portfolio.In Tanzania, Absa owns two banks and aims to consolidate them. In addition, the group owns majority stakes in banks in Botswana, Ghana, Mauritius, Mozambique, Seychelles, Uganda and Zambia. It also has insurance operations in Kenya and South Africa. Absa has representative offices in Namibia, Nigeria and the US. In total, Absa’s Africa regions’ portfolio contributed 31% of group headline earnings in 2025.
