The Absa Group is considering joining a payment platform that facilitates direct settlement in Chinese currency to capitalize on the growth in trade with Africa’s largest trading partner, China.
According to a Bloomberg report, the bank plans to join China’s Cross-border Interbank Payment System (CIPS), which is Beijing’s global payment solution for yuan-denominated transactions, according to Abdi Mohamed, CEO of the South African bank’s Kenyan unit.
“We are a key part of the initial discussions about the system, about what it could mean for the continent in terms of opportunity and as a platform,” he said in an interview in Kigali, Rwanda, on Friday (the 15th), adding that “it is a good complement to the global payment systems we already have.”
Africa’s largest bank, Standard Bank Group, became the first in the region to connect directly to CIPS in November of last year, processing $572 million in transactions over the past six months. Jeremy Awori, CEO of Ecobank Transnational, said separately on Friday that the institution was applying to join CIPS.
Currently, African traders convert their local currencies into dollars before exchanging them again for yuan, a process that increases costs, exposes them to dollar shortages, and makes their economies more vulnerable to exchange rate volatility.
Absa—South Africa’s third-largest bank, with a regional presence in 12 countries—is exploring “how to simplify this process so that we can settle directly,” said Abdi Mohamed.
Absa Kenya plans to double its pre-tax profits over the next five years, maintaining the momentum achieved over the past five, Mohamed said. One of the main risks to that outlook is the impact of the war in Iran on supply chains and inflation, which will hurt growth prospects, he noted.
The secondary impacts on credit quality, performance, and default rates have not yet been felt, but the most immediate effect Absa anticipates is increased demand for loans and higher credit limits for imports due to the rising cost of goods.
Absa is also considering acquisitions to increase its market share in Kenya, Mohamed noted.
