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Retail Banking: Africa Ready for Quantum Leap
- By Business World
- Published March 15th, 2010
- StockWorld
- Unrated
Retail banks in Africa have emerged from the financial crisis relatively unscathed, although a credit shortage indicates signs of contagion. The market is likely to consolidate as major players expand beyond their home borders. Mobile financial services will also have a transformational effect – enabling enlightened players to leapfrog their competitors. Ronan McCaughey reports.
AFRICA’S retail banking sector is radically restructuring as expansion plans drawn up by major players across the continent drive consolidation, and payment innovations reshape operational models.
South Africa’s FirstRand Group, which owns First National Bank (FNB), is the latest financial services provider to be plotting expansion beyond its national borders. In the group’s June 2009 annual report, FirstRand Bank CEO Sizwe Nxasana said that the group was awaiting regulatory approval for representative offices in Nigeria and Angola, and that there are plans to commence full banking services in Tanzania in the near future. FirstRand Group has also formally expressed an interest in participating in the Nigerian Central Bank’s process of consolidating its banking industry. Sam Moss, director of investor relations at FirstRand Group, explains: “The timing of this process is managed by the Nigerian Central Bank. Entering this process does not mean that FirstRand is doing or is about to do a specific transaction with a specific Nigerian Bank. In line with the group’s strategy, we would be interested in all key segments of banking – namely corporate, investment and retail banking.”FirstRand Group’s expansionary strategy mirrors the approach pursued by other major financial institutions in South Africa. The ‘big four’ in South Africa – Standard Bank, FNB, Absa and Nedbank – already control approximately 90 percent of the retail market for personal transaction accounts, and the leading players recognise that the next step is to target new markets and segments, such as Africa’s unbanked population.
One ‘pioneer’ in growing its presence outside South Africa is Standard Bank, with operations in 17 African countries. In November 2009, the bank revealed that it had been granted a banking license in Angola, enabling it to start operating as a full-service bank there by mid-2010. Clive Tasker, chief executive of Standard Bank Africa, has confirmed Standard Bank’s interest in participating in the next round of consolidation in Nigeria’s banking market: “Standard Bank sees further growth opportunities in Nigeria, both organically on the back of a well-established local business, which is fully integrated into the rest of our network, as well as through select acquisitions that can facilitate faster development o four Nigerian business or add market share and scale in select products, infrastructure and business units.”
A strategic partnership between Standard Bank and Industrial and Commercial Bank of China (ICBC) will generate further cooperation benefits and capacity to grow in Africa in the years ahead. ICBC acquired a 20 percent stake in Standard Bank in March 2008.
Keith Jefferis, managing director of economic consultancy ECONSULT in Botswana, says South African banks initially expanded into southern and eastern Africa, but are now monitoring opportunities in west Africa, particularly Ghana and Nigeria.
Jefferis says: “Standard Bank has been much more aggressive in expanding into Africa. Banks in Africa are very profitable, compared to developed markets, because there are less competitive pressures and consumers are not particularly price sensitive. It is therefore very attractive for South African banks to enter these markets.”
Nedbank has also been active in extending its coverage across Africa and, in December 2008, it agreed an alliance with Ecobank Transnational Incorporated (ETI) – the parent company of the Togo-based EcobankGroup.The partnership allows Ecobank to retain its focus on expanding into less mature markets, while also enhancing its service offering in southern Africa. It also enables both institutions to manage their related costs and risks effectively.
Alfred Visagie, joint head of thegroup strategy unit at Nedbank, says the strategic alliance with Ecobank has enabled Nedbank to expand its presence into sub-Saharan Africa and will consider joint investments as opportunities arise: “Valuations have come down quite considerably in the past 18 months. Africa presents the next growth opportunity and is a region where our South African clients are also expanding into.”
Visagie’s comments come at a time when growth rates in African countries have plummeted as the economic downturn has hit the continent’s economic drivers, particularly trade flows, capital inflows, natural resource sectors and agricultural exports. The recessionary environment has therefore been a major setback for economic progress in Africa, with growth in the continent estimated to drop from 5.7 percent in 2008 to 2.8 percent in 2009.
A spokesman for Bank Millennium Angola, a subsidiary of Portugal’s Millennium bcp, says: “The main lesson is that we need to be permanently focused on managing the different types of bank risk, especially liquidity and systemic risks.”
Thabi Leoka, an economist for Barclays Wealth, covers emerging markets for the global wealth manager and says that, broadly speaking, African banks have not been as affected by the crisis as banks in the developing world because they were not exposed to the housing market in the US. “However, we do see some contagion – most noticeably the coordinated move by banks to be less willing to lend due to the shortage of credit,”says Leoka.
Visagie explains that South Africa’s banking system has remained stable during the crisis, with capital levels increasing at all banks and liquidity remaining sound: “SouthAfrican banks have seen a large increase in impairments – in line withdeteriorating economic conditions – mostly in the retail market, which is now flattening out, and more recently in the wholesale segments.”
The Bank Millennium Angola spokesman also stresses that in spite of the international financial crisis, Angola continues to enjoy robust stability, which serves as an essential backdrop to the continuing effort to rebuild and modernise the country.
This is echoed by Millennium bim – Millennium bcp’s subsidiary in Mozambique – where a spokesman says the bank has not been directly affected by the financial crisis and has been following a programme of branch and ATM network expansion since 2007.
While lenders in Southern Africa have remained relatively insulated from the crisis, recent volatility in Nigeria’s retail banking sector illustrates the distinct characteristics of retail banking from one African country to the next.
Industry consolidation has been a feature of the Nigerian retail banking sector in recent years, reducing the number of banks from 89 in 2004 to 24 currently. This figure looks set to fall further after the Financial Times reported in June 2009 that Nigeria’s central bank governor, Sanusi Lamido Aminu Sanusi had suggested that 15 banks might emerge from consolidation in the country.
Sanusi hit the headlines again in August 2009 after he dismissed the managing directors and executive directors of five banks, including Afribank, Finbank and Intercontinental, and promised a $2.64 billion bailout to save the country’s banking system from a systemic crisis.
Events accelerated in October 2009, when Sanusi bailed out four more banks and fired three executives, bringing the total pumped into the financial sector to $3.94 billion.
Garry Marsh, senior advisor for retail and private banking at Nigeria’s Diamond Bank, says that financial institutions in Nigeria have been badly impacted by the economic downturn, with massive increases in NPLs and significantly reduced profits across the
sector: “It is likely that some banks would have run into major problems anyway, irrespective of the downturn, due to poor governance and management.”
According to Marsh, the upheaval led banks to reduce the amount of credit available, with almost all banks ceasing lending activity. In Marsh’s view, the turmoil also impacted consumer confidence as many Nigerians are unbanked, and so are unlikely to be clamouring for a bank account after these developments.
Commenting on the likelihood of consolidation among African banks, Marsh expects a number of pan-African players to emerge in the future, such as Standard Chartered, Barclays and South Africa’s Standard Bank: “We expect an increase in the number of foreign banks and M&A activity within Nigeria. Overall, it should lead to a stronger sector with more competitive and better-managed banks.”
In addition to pursuing organic growth in Nigeria, Marsh explains that Diamond Bank is already operational in the Republic of Benin and intends to establish a presence in Côte d’Ivoire, Senegal and Togo in 2010, as well as continuing its organic growth in Nigeria.
Kenyan banks have also been increasing their presence in the region, as John Wanyela, executive director of the Kenya Bankers Association, points out: “Banks such as Kenya Commercial Bank, Equity Bank and Diamond Trust Bank have established a presence in Uganda,Tanzania, Sudan and Rwanda.”
In Wanyela’s view, consolidation remains an option in Kenya, but is not the current priority. “We already have the presence of both South African and West African banks in Kenya, which is healthy for competition.”
Expansion led by major players in Africa is likely to dramatically reshape the continent’s retail banking market within the next two years. However Simon Cavill communications director at mobile money services provider Mi-Pay, argues that no bank or financial institution in Africa today can ignore the ‘juggernaut’ of mobile-initiated financial services.
Cavill states: “The rapid growth of M-PESA in Kenya, along with the launch of many other mobile phone-focused payments from the likes of Zain or MTN in 2009, has had a seismic effect on the African financial services market.”
The success of M-PESA, which was developed by Vodafone and launched in Kenya by Safaricom in 2007, is regarded by many commentators as a window to the future of retail financial services in Africa.
Cavill says: “Whilst the total amount of money going through M-PESA and similar schemes is still dwarfed by the current mainstream banking systems in each country, the fact that they are rapidly gaining millions of loyal consumers and introducing them to the financial services market for the first time cannot be ignored. Many M-PESA customers are now using the service to store their cash, and it is only a matter of time before these turn into full savings accounts and even private pension schemes.”
The spokesman for Millennium bim also emphasises the importance of mobile banking. Given Mozambique’s size, poor communication infrastructure and high number of unbanked individuals, Millennium bim is constantly searching for new ways to enable the unbanked and underserved to access banking services, says the spokesman.
Hannes van Rensburg, CEO of mobile financial services provider Fundamo, expects that in the future, African regulators will provide incentives for banks to offer banking services to lower-income segments. In van Rensburg’s view, this is likely to lead to players from other industries, such as mobile operators and retailers, starting to offer new types of banking or payment solutions that “will change banking on the continent forever”.
Overall, many banks have plans to grow their penetration and transaction volumes beyond their domestic markets, and this is likely to accelerate the consolidation process that has already started.
Technological developments in mobile financial services are also revolutionizing the African market, and they appeal to unbanked consumers– estimated to be approximately 60 percent of South Africa’s population – because they eliminate many of the traditional barriers to entry.
As van Rensburg says: “Expectproducts and solutions in Africa to evolve into banking products that are unique to the emerging markets, with low-cost delivery, more security and flexibility. Banking products will have more utility for emerging markets and will, in some ways, lead what is beingdeveloped in first-world markets because of the greater need.”
AFRICA’S retail banking sector is radically restructuring as expansion plans drawn up by major players across the continent drive consolidation, and payment innovations reshape operational models.
South Africa’s FirstRand Group, which owns First National Bank (FNB), is the latest financial services provider to be plotting expansion beyond its national borders. In the group’s June 2009 annual report, FirstRand Bank CEO Sizwe Nxasana said that the group was awaiting regulatory approval for representative offices in Nigeria and Angola, and that there are plans to commence full banking services in Tanzania in the near future. FirstRand Group has also formally expressed an interest in participating in the Nigerian Central Bank’s process of consolidating its banking industry. Sam Moss, director of investor relations at FirstRand Group, explains: “The timing of this process is managed by the Nigerian Central Bank. Entering this process does not mean that FirstRand is doing or is about to do a specific transaction with a specific Nigerian Bank. In line with the group’s strategy, we would be interested in all key segments of banking – namely corporate, investment and retail banking.”FirstRand Group’s expansionary strategy mirrors the approach pursued by other major financial institutions in South Africa. The ‘big four’ in South Africa – Standard Bank, FNB, Absa and Nedbank – already control approximately 90 percent of the retail market for personal transaction accounts, and the leading players recognise that the next step is to target new markets and segments, such as Africa’s unbanked population.
One ‘pioneer’ in growing its presence outside South Africa is Standard Bank, with operations in 17 African countries. In November 2009, the bank revealed that it had been granted a banking license in Angola, enabling it to start operating as a full-service bank there by mid-2010. Clive Tasker, chief executive of Standard Bank Africa, has confirmed Standard Bank’s interest in participating in the next round of consolidation in Nigeria’s banking market: “Standard Bank sees further growth opportunities in Nigeria, both organically on the back of a well-established local business, which is fully integrated into the rest of our network, as well as through select acquisitions that can facilitate faster development o four Nigerian business or add market share and scale in select products, infrastructure and business units.”
A strategic partnership between Standard Bank and Industrial and Commercial Bank of China (ICBC) will generate further cooperation benefits and capacity to grow in Africa in the years ahead. ICBC acquired a 20 percent stake in Standard Bank in March 2008.
Keith Jefferis, managing director of economic consultancy ECONSULT in Botswana, says South African banks initially expanded into southern and eastern Africa, but are now monitoring opportunities in west Africa, particularly Ghana and Nigeria.
Jefferis says: “Standard Bank has been much more aggressive in expanding into Africa. Banks in Africa are very profitable, compared to developed markets, because there are less competitive pressures and consumers are not particularly price sensitive. It is therefore very attractive for South African banks to enter these markets.”
Nedbank has also been active in extending its coverage across Africa and, in December 2008, it agreed an alliance with Ecobank Transnational Incorporated (ETI) – the parent company of the Togo-based EcobankGroup.The partnership allows Ecobank to retain its focus on expanding into less mature markets, while also enhancing its service offering in southern Africa. It also enables both institutions to manage their related costs and risks effectively.
Alfred Visagie, joint head of thegroup strategy unit at Nedbank, says the strategic alliance with Ecobank has enabled Nedbank to expand its presence into sub-Saharan Africa and will consider joint investments as opportunities arise: “Valuations have come down quite considerably in the past 18 months. Africa presents the next growth opportunity and is a region where our South African clients are also expanding into.”
Visagie’s comments come at a time when growth rates in African countries have plummeted as the economic downturn has hit the continent’s economic drivers, particularly trade flows, capital inflows, natural resource sectors and agricultural exports. The recessionary environment has therefore been a major setback for economic progress in Africa, with growth in the continent estimated to drop from 5.7 percent in 2008 to 2.8 percent in 2009.
A spokesman for Bank Millennium Angola, a subsidiary of Portugal’s Millennium bcp, says: “The main lesson is that we need to be permanently focused on managing the different types of bank risk, especially liquidity and systemic risks.”
Thabi Leoka, an economist for Barclays Wealth, covers emerging markets for the global wealth manager and says that, broadly speaking, African banks have not been as affected by the crisis as banks in the developing world because they were not exposed to the housing market in the US. “However, we do see some contagion – most noticeably the coordinated move by banks to be less willing to lend due to the shortage of credit,”says Leoka.
Visagie explains that South Africa’s banking system has remained stable during the crisis, with capital levels increasing at all banks and liquidity remaining sound: “SouthAfrican banks have seen a large increase in impairments – in line withdeteriorating economic conditions – mostly in the retail market, which is now flattening out, and more recently in the wholesale segments.”
The Bank Millennium Angola spokesman also stresses that in spite of the international financial crisis, Angola continues to enjoy robust stability, which serves as an essential backdrop to the continuing effort to rebuild and modernise the country.
This is echoed by Millennium bim – Millennium bcp’s subsidiary in Mozambique – where a spokesman says the bank has not been directly affected by the financial crisis and has been following a programme of branch and ATM network expansion since 2007.
While lenders in Southern Africa have remained relatively insulated from the crisis, recent volatility in Nigeria’s retail banking sector illustrates the distinct characteristics of retail banking from one African country to the next.
Industry consolidation has been a feature of the Nigerian retail banking sector in recent years, reducing the number of banks from 89 in 2004 to 24 currently. This figure looks set to fall further after the Financial Times reported in June 2009 that Nigeria’s central bank governor, Sanusi Lamido Aminu Sanusi had suggested that 15 banks might emerge from consolidation in the country.
Sanusi hit the headlines again in August 2009 after he dismissed the managing directors and executive directors of five banks, including Afribank, Finbank and Intercontinental, and promised a $2.64 billion bailout to save the country’s banking system from a systemic crisis.
Events accelerated in October 2009, when Sanusi bailed out four more banks and fired three executives, bringing the total pumped into the financial sector to $3.94 billion.
Garry Marsh, senior advisor for retail and private banking at Nigeria’s Diamond Bank, says that financial institutions in Nigeria have been badly impacted by the economic downturn, with massive increases in NPLs and significantly reduced profits across the
sector: “It is likely that some banks would have run into major problems anyway, irrespective of the downturn, due to poor governance and management.”
According to Marsh, the upheaval led banks to reduce the amount of credit available, with almost all banks ceasing lending activity. In Marsh’s view, the turmoil also impacted consumer confidence as many Nigerians are unbanked, and so are unlikely to be clamouring for a bank account after these developments.
Commenting on the likelihood of consolidation among African banks, Marsh expects a number of pan-African players to emerge in the future, such as Standard Chartered, Barclays and South Africa’s Standard Bank: “We expect an increase in the number of foreign banks and M&A activity within Nigeria. Overall, it should lead to a stronger sector with more competitive and better-managed banks.”
In addition to pursuing organic growth in Nigeria, Marsh explains that Diamond Bank is already operational in the Republic of Benin and intends to establish a presence in Côte d’Ivoire, Senegal and Togo in 2010, as well as continuing its organic growth in Nigeria.
Kenyan banks have also been increasing their presence in the region, as John Wanyela, executive director of the Kenya Bankers Association, points out: “Banks such as Kenya Commercial Bank, Equity Bank and Diamond Trust Bank have established a presence in Uganda,Tanzania, Sudan and Rwanda.”
In Wanyela’s view, consolidation remains an option in Kenya, but is not the current priority. “We already have the presence of both South African and West African banks in Kenya, which is healthy for competition.”
Expansion led by major players in Africa is likely to dramatically reshape the continent’s retail banking market within the next two years. However Simon Cavill communications director at mobile money services provider Mi-Pay, argues that no bank or financial institution in Africa today can ignore the ‘juggernaut’ of mobile-initiated financial services.
Cavill states: “The rapid growth of M-PESA in Kenya, along with the launch of many other mobile phone-focused payments from the likes of Zain or MTN in 2009, has had a seismic effect on the African financial services market.”
The success of M-PESA, which was developed by Vodafone and launched in Kenya by Safaricom in 2007, is regarded by many commentators as a window to the future of retail financial services in Africa.
Cavill says: “Whilst the total amount of money going through M-PESA and similar schemes is still dwarfed by the current mainstream banking systems in each country, the fact that they are rapidly gaining millions of loyal consumers and introducing them to the financial services market for the first time cannot be ignored. Many M-PESA customers are now using the service to store their cash, and it is only a matter of time before these turn into full savings accounts and even private pension schemes.”
The spokesman for Millennium bim also emphasises the importance of mobile banking. Given Mozambique’s size, poor communication infrastructure and high number of unbanked individuals, Millennium bim is constantly searching for new ways to enable the unbanked and underserved to access banking services, says the spokesman.
Hannes van Rensburg, CEO of mobile financial services provider Fundamo, expects that in the future, African regulators will provide incentives for banks to offer banking services to lower-income segments. In van Rensburg’s view, this is likely to lead to players from other industries, such as mobile operators and retailers, starting to offer new types of banking or payment solutions that “will change banking on the continent forever”.
Overall, many banks have plans to grow their penetration and transaction volumes beyond their domestic markets, and this is likely to accelerate the consolidation process that has already started.
Technological developments in mobile financial services are also revolutionizing the African market, and they appeal to unbanked consumers– estimated to be approximately 60 percent of South Africa’s population – because they eliminate many of the traditional barriers to entry.
As van Rensburg says: “Expectproducts and solutions in Africa to evolve into banking products that are unique to the emerging markets, with low-cost delivery, more security and flexibility. Banking products will have more utility for emerging markets and will, in some ways, lead what is beingdeveloped in first-world markets because of the greater need.”
