Africa’s financial sector draws increasing interest from investors

 

When Bob Diamond, the controversial former chief executive of Barclays bank, announced that his new investment vehicle was making its first foray into Africa, it triggered a flurry of attention on the continent’s banking sector.

He hopes to revive his career by betting on the future of the world’s least banked continent. His investment vehicle, Atlas Mara, splashed out US$265 million on BancABC, a low-profile midsized southern African bank with operations stretching from Botswana to Zimbabwe. He rapidly followed that deal with stakes in Union Bank of Nigeria and the Development Bank of Rwanda.

Diana Layfield, chief executive for Africa at Standard Chartered, speaks of a “pretty dynamic market”.

“We’ve seen competition for people, we’ve seen a lot of hiring . . . and now we are seeing new investors in the financial services sector, an obvious one being Atlas Mara,” Layfield says.

This year, Standard Chartered opened a bank in Angola, Africa’s second-biggest oil exporter and its third-largest economy, while Citigroup opened a branch in Lubumbashi, the Democratic Republic of Congo’s mining centre, in 2013. Barclays, meanwhile, completed a deal that saw it combine its Africa operations with Absa, its subsidiary and one of South Africa’s top four banks, now rebranded Barclays Africa.

For now, much of the activity is about building footprints and positioning for growth as the deal flow across the continent remains relatively small. With the exception of South Africa, which boasts a US$1 trillion stock market, capital markets are small and often illiquid.

One investment banker comments: “There are far too many banks chasing the opportunities that are there today. Everybody thinks they have to have some kind of presence in Africa and do something.

On the retail side, just a quarter of adults in sub-Saharan Africa report having an account at a formal financial institution, which is less than half of the global average of 51 percent, according to the World Bank.

Yet bankers are bullish about Africa’s trajectory, as the continent’s mineral wealth helps drive some of the world’s fastest expanding economies, mushrooming middle classes are driving growth in sectors such as services and consumer goods. On the back of this, African banks are also flexing their muscles and moving further beyond their borders. South Africa’s big four – Standard Bank, FirstRand, Absa/Barclays Africa and Nedbank – have been pursuing such strategies for several years. Standard Bank, for example, has been disposing of international assets, while refocusing on Africa where it has a presence across 19 nations. In the first six months of this year, Africa, excluding South Africa, contributed about 30 percent of the group’s revenue, nearly three times what it was five years ago.

FirstRand, meanwhile, said last month that it had set aside R10 billion (US$900m) to expand in Africa, with an eye on setting up operations in Ghana, Kenya and Angola. Ambitious west and east African lenders are also taking a more pan-African approach. Two of Kenya’s biggest banks, Equity Bank and Kenya Commercial Bank, both of which have operations across east Africa, this year announced plans to expand into new countries, with the latter considering southern African nations including gas-rich Mozambique and copper-producing Zambia. In the west, Nigerian banks have long been spreading their wings. United Bank for Africa boasts a presence across 19 African states, while Access Bank is in seven African countries.

Bismark Rewane, a Lagos-based financial analyst, says Nigerian banks are now being more selective in their expansion plans, “cherry picking and looking at countries were they can support Nigerian businesses”.

“They are not just opening in countries for the sake of it,” he says.

Still, Samuel Maimbo, a finance expert at the World Bank, says the increasingly competitive terrain should benefit the consumer, and could help ease the challenges smaller businesses face accessing capital.

“There has been an increase in the quality of basic banking services for retail customers, and for small and medium enterprises. It’s going to be an increasingly important niche,” he says.

There have been some serious bumps along the way. Ecobank, one of the pioneers of the pan-African banking model and which boasts a 35-country network, was plagued for months by a governance crisis that eventually led to the ousting of its chief executive.

In South Africa, the largest provider of unsecured lending, African Bank, required a US$1.6b rescue package to save it from collapse.

The latter caused Moody’s to downgrade South Africa’s top four banks and put a spotlight on the rapid growth of unsecured lending. But African Bank has been characterised as an isolated case and banks’ appetite for African exposure shows few signs of dimming.

“It does require a diversified banking sector with not everybody doing the same thing and that’s what you are increasingly seeing, which is a good thing,” says Layfield. – Financial Times

October 2014
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