Africa offers pot of gold for local banks

Africa’s immature banking industry presents great opportunities, and the expansion into the continent that South African banking giants had undertaken may prove to be a prudent move as growth in the local market slows down.

Ross Jenvey, an analyst at Credit Suisse Standard Securities, said last week that Standard Bank had realised at least 10 years ago that if it did not expand into other countries, it might run out of space for growth because of its high market share in South Africa.

Jenvey added that Nedbank and FirstRand were increasingly seeing African expansion as an extra bonus.

“But they have preferred for most of the last 10 years to concentrate on expanding their presence in South Africa rather than stretching into too many other African markets,” said Jenvey. “This is changing as South Africa’s growth levels slow down.”

However, South Africa’s banks have adopted different strategies to take advantage of these opportunities.

Absa had wanted to acquire all African assets of Barclays, but failed as neither side would agree on the valuation.

These included Barclays’ operations in Botswana, Ghana, Kenya, Tanzania, Uganda, Zambia and Zimbabwe.

Standard Bank, which has a presence in 18 African countries, has recently accelerated its investment in developing critical mass in key markets.

This involved building management capacity, special skills and infrastructure, and making appropriate acquisitions in selected markets.

FirstRand, South Africa’s third-biggest bank, said that it preferred greenfields expansion into Africa, as this was low risk and allowed the banking group to deploy its capital incrementally.

Michael Jordaan, the chief executive of First National Bank, a division of FirstRand, said that in the case of Zambia, the bank had thought about an acquisition, but it found the price tag too hefty.

Nedbank Group and Ecobank Transnational, the parent firm of Togolese banking giant Ecobank Group, recently entered into a strategic business co-operation relationship.

This was designed to provide customers access to a combined pan-African banking network covering 30 countries, with more than 1 000 branches and outlets.

Credit: Mzwandile Jacks

Source: Business Report