The South African banking sector has reaped the rewards of its forward planning and strong compliance, experiencing markedly less fallout than its global counterparts. It now seems that the sector is ready to continue its expansion into Africa with renewed vigour.
‘The South African banking sector has weathered the storm of 2009 and we believe that respectable growth will happen in 2010. Banks are seeking growth opportunities abroad, especially in Nigeria,” according to the analysts from Business Monitor International in its third-quarter 2010 South African Commercial Banking Report.
Despite the lure of a rapidly growing market and many financial institutions actively seeking investment, Africa remains a high-risk environment and local banks are approaching the continent with cautious optimism. Absa is one company determined to grow its African business, saying it would like to double its earnings from continental business outside South Africa from the current 3% to around 7% by 2012, to grow to at least 10% later.
Louis von Zeuner, deputy group chief executive, says the group will be looking to collaborate with the banking group’s parent, Barclays, to move into the region. ‘After the Barclays transaction, we wondered how we would leverage the assets to extend our footprint into Africa. We are now looking at ways to collaborate that will benefit both businesses,” Von Zeuner said.
Absa has an 80% stake in Barclays Bank Mozambique, previously Banco Austral, acquired in January 2002. BBM is one of the largest retail banks in Mozambique, with branches in all the provinces servicing more than 400 000 customers.
The Absa stake in the Tanzanian National Bank of Commerce stands at 55%. It is one of the largest and oldest banks in Tanzania and services more than 220 000 retail and corporate customers.
Von Zeuner said neither Absa nor Barclays had operations in Nigeria and both were looking at expansion into that country, Angola and the Democratic Republic of Congo (DRC). The scramble for banks in Nigeria, after a recent industry shake-up, is hotting up with recent reports showing significant interest from both FirstRand and the Standard Bank Group.
‘We have no intention of going after a distressed bank in Nigeria. We have already applied for a representative office licence in the country. Looking critically at the environment, investment banking may be our best entry strategy. Nigeria will consume management time [and] you need size to compete, so we will look at this very carefully,” Von Zeuner said.
Infrastructure and logistics remain key challenges for banks in Africa and Absa still finds the dearth of skills and the language barriers in African countries a challenge. Von Zeuner said the different political agendas and lack of commonalty in the judiciary and telecoms environment called for a very sound risk management.
‘Absa has to deal with South African and United Kingdom regulatory requirements as it is. Global banking brings still more legislative requirements. Compliance brings with it both additional complexity and cost. This won’t change any time soon and you need to gear your business appropriately to deal with this.”
Nedbank has had operations outside of South Africa for more than 15 years and operates banks in Zimbabwe, Namibia, Malawi, Swaziland and Lesotho. In 2008, it complemented its existing operations through an alliance with Ecobank, the largest pan-African bank (by footprint).
The Ecobank/Nedbank alliance enables both banks to serve clients in 34 African countries and they claim to be the largest banking network in Africa.Nedbanks says it will continue to explore cautiously investment opportunities in countries with high growth prospects. But it has warned that the lack of liquid equity and capital markets has made it difficult for companies to raise funding; and this raises the cost of funding, particularly for term transactions.
The bank says good governance and receptive investment policies that create an atmosphere for foreign direct investment to flourish are critical and there is a need for the universal adoption of international regulatory and reporting standards, such as Basel and IFRS (international financial reporting standards).
Ultimately, the risk profile is inherently linked to the political stability and the perception of corruption in a country. As these challenges are addressed, the investment profile of a country improves.
Despite the lack of regulatory commonality, South African banks are rising to the challenges laid down by the increasingly aggressive Chinese institutions. And although they may be checking the temperature of the business water, there is no doubt that they are ready to dive into the African banking pool.
Distrust of technology weighs heavily on new business
BankservAfrica, the automated clearing house, believes Africa holds many opportunities, but says companies are still frustrated by the time it takes to establish operations in a continent that remains distrustful of technology. Last year BankservAfrica was responsible for switching, clearing and settling 2.5-billion transactions, worth R8-trillion.
‘Time is a frustration for banking companies doing business in Africa. There are many delays and bureaucratic hold-ups. This is exacerbated by a lack of definitive strategies at the central bank level, all of which can lead to long delays and create an environment of uncertainty,” said Pieter Cilliers, chief executive officer of BankservAfrica. That said, Cilliers believes there are pockets of hope and said that Rwanda, the Democratic Republic of Congo and Ghana were success stories.
‘These countries are looking good, but I think that the Nigerian Central Bank is really shining. It has a clear strategy and we are seeing some exciting business prospects in the country. I expect this country to become the China of Africa.” Cilliers said payments systems were often the last to be acknowledged in a banking system, and that they were only thought about when something went wrong.
There has been increased political pressure for central banks to increase financial stability, improve liquidity and reduce transaction costs, and payment systems are beginning to receive the regulatory attention they deserve in many countries.
Standardisation would help business in Africa and regulatory harmonisation would speed up the ability of companies to move into new regions without having to rework all their systems. As telecommunications develop, it will become easier but there is still a level of naivety among central bank governors and many of them distrust technology. And when it comes to a single currency, Cilliers has warned that companies should not hold their breath.
‘The idea of a single currency is still hotly debated, and we don’t expect to see any move to introduce it in the next decade.” Innovation and technology are certainly on the BankservAfrica agenda and Cilliers says inter operability will drive mobile banking products. He also expects some consolidation of products in South Africa.
‘Mobile has never been as important in South Africa as it is in the rest of Africa. Banking in South Africa is mature and stable and most people can simply and quickly get access to card payment solutions. It makes sense for there to be some consolidation in the mobile offerings space.”
No matter what technologies are coming down the line, Cilliers remains confident that there is the political will to improve banking in Africa and says his company will continue its drive into the continent.