Nedbank eyes these businesses for growth

Nedbank has launched its new Mid-Corporate (Mid-Corp) product as part of its commercial banking offering that specifically targets companies that typically have turnovers of around R1 billion. 

The offering has been open to existing clients for a year already and is now open to the public, with Nedbank looking to win a 25% market share within the “missing middle” segment.

These businesses have long been considered a sweet spot for direct lending, as a single bank can cover all the needs of the company without having to crowd in other sources of financing. 

It also enables tailor-made solutions for these clients’ needs as they are of sufficient scale for the bank to allocate time towards meeting specific client needs, Nedbank’s managing executive for retail and business banking, Ciko Thomas, said.

Crucially, these banks also tend to come with strong balance sheets, high growth prospects, and established track records, Nedbank’s executive head for Mid-Corp coverage, Herman de Kock, said.

These companies tend to fall between the traditional offerings of business banking and corporate and investment banking, De Kock said.

As such, they often miss out on transactional banking-specific solutions and advisory services offered to companies that fit existing definitions more readily.

Through this offering, Nedbank aims to redefine banking for these businesses by combining the services typically offered by its business banking unit and its large corporate services.

It also plans to be there on the entire journey for these companies, from being a family-owned entity all the way through to a potential JSE listing.

The bank is particularly attracted by the tendency of these businesses to grow through bolt-on acquisitions, which it can arrange and finance.

Nedbank’s research indicates that there could be around 3,000 to 4,000 entities within the Mid-Corp market that are potential clients for the bank.

The bank aims to have around 25% market share of this segment, which is dominated by Nedbank and its ‘Big Four’ peers of Standard Bank, Absa, and FirstRand, as well as Investec.

Nedbank’s push into this segment is part of the trend of South Africa’s biggest banks looking to business banking to drive growth as other areas of the market come under pressure. 

Traditionally, much emphasis was given towards corporate and investment banking clients as they offered ‘big ticket’ deals and lending opportunities. 

However, with South Africa’s slow economic growth in the past decade, large corporate dealmaking has slowed alongside their lending needs. 

This has pushed banks to look elsewhere for growth by targeting specific individuals or businesses that may have been neglected in the past decade. 

The mid-market of business banking has proven to be ripe for disruption and growth as it plays an increasingly important role in the local economy. 

According to the International Finance Corporation, small, medium and microenterprises (SMMEs) contribute around 34% of GDP and account for about 91% of the formal business entities in South Africa. 

The Small Enterprise Development Agency’s SMME quarterly update revealed that SMMEs employed 9.8 million people ─ around 64% of total employment across the economy.

This makes it extremely attractive for South Africa’s biggest banks, which have long been starved of growth from large corporates. 

The Mid-Corp product offering from Nedbank also follows the trend of banks looking to become integrated financial services providers. 

This means they are increasingly looking to cover all the financial needs of clients, from banking to insurance and advice. 

Nedbank’s Mid-Corp offering looks to unite all these offerings into a single package for medium-sized businesses. 

Nedbank’s launch of its Mid-Corp commercial banking offering closely follows that of Investec, which launched its business banking products targeting these businesses in 2020. 

Investec made a big push into business banking by using its reputation as a niche private banker and wealth manager to win over mid-market business clients from its ‘Big Four’ competitors.

Investec began developing a fully-fledged business banking unit with lending and transactional capabilities in 2017 but only officially launched Investec Business Banking in mid-2020.