African banking sector offers unparalleled growth potential
In mobile banking, African finance can really claim to be ahead of the game, as major players like Kenya’s Safaricom, with its M-Pesa offering, rule the market. (Image: Afritorial)
Faced with stuttering faith in the traditional emerging markets of Asia and Latin America and disillusioned by numerous banking scams in the developed economies of US and Europe, if there is one market that bankers are ready to place their bets on, it is Africa.
There is a wave of renewed interest in the continent, particularly its financial sector.
Market research major McKinsey estimates that three-quarters of Africans still do not have a bank account while industry executives figure that only 5 per cent of the region have a credit card.
And, it is the so-called “unbanked” that are viewed as future pillars of economic growth by a majority of bankers looking to Africa.
No wonder then that Sim Tshabalala, joint chief executive of Johannesburg-based Standard Bank, says the continent is ‘very attractive’, as banks benefit from economic growth and increasing banking penetration.
Pim van Ballekom, vice-president responsible for sub-Saharan Africa at the European Investment Bank, explained in a report this year that the relatively stable macro¬economic and financial environment of sub-Saharan Africa did indeed “bode well for further development of the banking system”.
The region is dominated by a handful of banks, with four institutions from South Africa leading the pack. Standard Bank is by far the largest by assets, with $182bn, followed by FirstRand, with $100bn, and Barclays Absa and Nedbank with $95bn and $80bn, respectively.
Outside South Africa, banks are far smaller in terms of total assets. Ecobank, a Togo-based bank with business across the continent, is the largest with assets of about $20bn.
Besides, international banks are following Standard Bank and Barclays into Africa. Standard Chartered has expanded across the region, along with Citigroup, Société Générale and HSBC.
This comes as Africa enjoys its strongest economic growth in a generation, with the International Monetary Fund forecasting that sub-Saharan Africa will grow by 6 per cent in 2014 – second only to developing Asia at 6.5 per cent and well above the global rate of 3.6 per cent.
Although bankers see opportunities across Africa, most say they are focusing on a handful of markets, including South Africa, Nigeria, Kenya, Tanzania, Mozambique, Ghana, Angola and Zambia.
Bankers and government officials believe that as ordinary workers gain access to basic banking facilities, and the emerging middle classes tap into sophisticated financial services, there should be a feedback loop to greater spending and consumption, and hence further economic expansion.
However, all is not well. There are dangers as exemplified by a banking crisis in Nigeria in 2008-09.
High operating costs and infrastructure are also problems. The lack of branches in many countries has made it difficult for individuals to open an account, even if they have the funds and income. In some cases, lenders such as Standard Bank have tried to bypass the issue by partnering with corner shops to create mini-branches.
And regulation, particularly of banks with operations across borders, is in its infancy.
However, the dearth of cross-border operators, which made life difficult for businesses wanting to expand, has been changing. Lenders such as Kenya’s Equity Bank are rolling out branches aggressively.
And, many business banks are operating across the continent, such as Nigeria’s UBA and Togo’s Ecobank, with the advent of cross-border infrastructure deals playing a major role.
But, it is in mobile banking that African finance can really claim to be ahead of the game. M-Pesa, the mobile payment service operated by Safaricom of Kenya, is reckoned to be responsible for more than half of all mobile remittances globally.
So, while many western banks struggle with ancient IT systems and a top-heavy branch network, African banks may well have sounder foundations for the financial services of the future.
Source: The Financial Times