Regional lender Equity Group Holding is on course to establish a presence in 10 African countries with a cautious entry into Zimbabwe—a country currently weighed down by a volatile exchange rate and hyperinflation.
The takeover of the Zimbabwean lender BancABC (Zimbabwe)—serving both corporates and retail—was part of Equity’s grand Atlas Mara deal, which saw the region’s largest lender by customer numbers gain entry into two additional countries Zambia and Mozambique— through acquisitions.
However, negotiations on the acquisition of BancABC Zimbabwe fell through after Equity chose to put the deal on hold pending improvement in the country’s macroeconomic environment.
BancABC, officially known as ABC Holdings is a wholly-owned subsidiary of Atlas Mara, which is listed on the London Stock Exchange.
Atlas Mara acquired the Botswana-based BancABC in 2014 for an estimated $265 million. The bank has subsidiaries in countries such as Mozambique, Tanzania, Zambia and Zimbabwe.
Zimbabwe’s economic situation
In April, Equity Bank entered into an agreement with Atlas Mara to acquire 100 per cent shareholding in BancABC Zambia, Mozambique, Tanzania and Zimbabwe including 62 per cent of the shares of Banque Populaire du Rwanda Ltd. Equity however dropped the acquisition of BancABC (Zimbabwe).
In exchange, Equity will surrender an estimated 252.5 million new ordinary shares representing 6.27 per cent of the bank to Atlas Mara valued at Ksh10.7 billion ($107 million).
Equity recently celebrated 35 years or operations with a rebranding campaign and in an interview last week, Equity Group’s chief executive James Mwangi told The EastAfrican that the company is aware of Zimbabwe’s economic situation and expects to resume acquisition talks with Atlas Mara once the country’s macroeconomic environment stabilises.
“Zimbabwe was part of the Atlas Mara transaction but we excluded it. We expect to resume negotiations once there is improvement in the macroeconomic environment. There is no specific date because it all depends with the economic environment,” said Dr Mwangi.
“We started our acquisitions with southern African countries and Zimbabwe is the only country that is left out. What informs our expansion in these countries is the level of their financial needs,” he added.
On the other hand, Atlas Mara said it intends to stabilise the operations of the Zimbabwean subsidiary—BancABC.
“The underperformance across most of the BancABC banks during 2018 remains a concern, and we have taken steps to address these performance challenges, including the proposed transaction with Equity Group Holding.
On a consolidated basis, Zimbabwe’s strong performance in local terms was undermined by the severe devaluation of the currency in the first quarter of 2019,” said Michael Wilkerson the group’s chairman in the 2018 annual report.
“Our key strategic priorities for this year include stabilising Zimbabwe operations in the current macroeconomic environment,” he added.
Even though BancABC reported an estimated net profit of $62 million during the six months’ period to June 30 this year compared with $4 million in the same period last year, the bank said in October that the volatile exchange rate arising from the country’s high public debt estimated at $9 billion has exerted some difficulties on its operations.
It is estimated that by mid-July this year Zimbabwe’s inflation had risen to 175 per cent, sparking fears that the country was entering a new period of hyperinflation—a period when prices of goods and services rise more than 50 per cent in one month.
This is after the Zimbabwean Central Bank banned the US dollar and South African rand from being legal tenders and allowed the country to revert to the Zimbabwe dollar.
Zimbabwe’s hyperinflation had ceased in 2015 when the US dollar was being used as legal tender.
Last year, the four BancABC banks in Tanzania, Mozambique, Zambia and Rwanda contributed in aggregate less than two per cent of the Atlas Mara profit, according to the lender’s annual report.
Equity, which currently has operations in six countries—Kenya, Uganda, Tanzania, Rwanda, South Sudan and the Democratic Republic of Congo and a commercial office in Ethiopia—is hoping to establish a presence in between 15 and 18 countries by 2024 with a customer base of more than 100 million clients as part of its ambitious Pan-African expansion drive.
The planned exit of Atlas Mara in some of the markets in the continent has come as a blessing in disguise for the Nairobi Securities Exchange-listed lender.
In February, the Atlas Mara board announced that it was undertaking a review of strategic options, including an analysis of each banking operation with a view to focus on investments in core markets, and to partner, exit or reduce risk exposure in other markets.
Atlas Mara is majority owned at 42 per cent by Canada-based investment holding company Fairfax Africa Holdings Corporation.
Last month, Equity announced it had entered into an agreement with the Commercial bank of the Congo Banque commercial du Congo, the second largest lender in the Democratic Republic of Congo by assets estimated at $700 million, with a view of merging its business with that of the existing Congolese subsidiary—Equity Bank DR Congo.
The transaction is expected to be completed by December this year subject to shareholder and regulatory approvals.