The African banking outlook has changed considerably in 30 years. African banks have increased their geographical footprint on the continent and become economically important beyond their home country. Estelle Brack reports.
Though pan-African banks seem to have slowed their pace in the past three years, it is mainly to consolidate what they have acquired and to organise new structures before resuming their expansion across the continent. And, in this phase, the ambitious South Africans can further their reach well beyond the area they cover today.
External growth on the continent has mainly happened through creating subsidiaries rather than branches. Though the decision over the type of new establishment largely depends on regulatory context, it can also reflect the bank’s regional strategy.
A bank intending to develop retail banking activities may find the subsidiary model appropriate as it allows for the relatively independent management of controlled operations, meeting capital and liquidity requirements. This is in contrast to the branch model, often preferred to support a closer corporate clientèle from the home country to the host country.
The banks’ continental expansion strategy seems to be fuelled mostly by the need to support corporate clients in their business activities abroad. This is notably the case for the United Bank for Africa (Nigeria), the Standard Bank Group – Stanbic (South Africa) or the Barclays Africa Group – via ABSA (UK and South Africa).
External growth on the continent has mainly happened through creating subsidiaries rather than branches. Though the decision over the type of new establishment largely depends on regulatory context, it can also reflect the bank’s regional strategy
In parallel, Ecobank or the Moroccans (Attijariwafa Bank, BMCE – via Bank of Africa and Banque Centrale Populaire of Morocco – via Banque Atlantique) are aiming for a broader customer base, including mobile money and micro-finance.
Ecobank, based in Togo and present in 36 African countries, saw half of its $2bn income in 2013 generated by corporate and investment banking (CIB) and the other half by domestic retail banking.
Some African banks have carried out their external banking growth through diversification strategies towards insurance and specialised financial services, like the Gabonese BGFI with its acquisition of Assinco, the insurers in 2012 and its partnership with OGAR.
The consolidation phase
Some establishments have also chosen to diversify their shareholders: Standard Bank Group (Stanbic) brought in the Chinese ICBC (Industrial and Commercial Bank of China) in 2007 to the tune of 20% of its capital.
The 10 largest African economies account for nearly 80% of the continent’s GDP, de facto limiting the opportunities in expanding towards the smallest economies.
Operations in Nigeria therefore remain central, making up 45% of Ecobank’s total balance sheet and 41% of its profits in 2012. For the United Bank of Africa (UBA), its 17 African subsidiaries contribute only around 20% of the Group’s profits.
Pan-African banking groups have started to streamline their acquisitions and should reorganise the new groups thus created. Their external growth may slow down. They need to consolidate, streamline, restructure the group and achieve economies of scale before continuing their progression.
In particular, governance needs to be adapted to the new size of groups created this way.