(Ecofin Agency) - The South African Absa Group has secured 13 guarantees totaling $1.1 billion from the Multilateral Investment Guarantee Agency (MIGA), a World Bank subsidiary, to support its investments in its subsidiaries across sub-Saharan Africa. This initiative underscores the World Bank's commitment to bolstering African banking groups in the wake of multinational withdrawals from the retail banking sector.

These guarantees cover Absa's general banking operations in nine countries: Ghana, Kenya, Mauritius, Mozambique, Seychelles, Tanzania, Uganda, and Zambia. They will help reduce Absa's risk-weighted assets and improve the required capital to extend more loans. This agreement is expected to generate approximately $706 million in new loans, with $489 million allocated to climate-related projects and the remainder supporting additional financing for small and medium-sized enterprises.

Hiroshi Matano, MIGA's Executive Vice President, stated, "Our partnership with Absa Group demonstrates our commitment to supporting climate finance. This collaboration significantly increases the availability of private credit in countries that are poor or affected by conflict and fragility." This expanded partnership aligns with efforts to promote sustainability and economic development in Africa.

The agreement highlights the crucial role the World Bank can play in supporting the expansion of pan-African banking groups, which may face capital challenges in their efforts to fill the void left by international banks. The targeted countries, such as Tanzania, Ghana, Kenya, and Mozambique, show promising growth dynamics or significant economic activity. However, mobilizing additional capital to meet the financing demands in these regions may still be challenging.

Absa Group's recent financial communications reveal a leverage ratio of 12 times, indicating the weight of debt compared to equity. While not alarming, it is less comfortable than the South African financial sector's average of 4.8 times. It will be interesting to see if MIGA's guarantees also enhance Absa's financial profitability, which stood at 13.5% over the past 12 months, significantly lower than direct competitors like Nedbank and Standard Bank.