South Africa’s FirstRand Group, which owns First National Bank (FNB), is the latest financial services provider to be plotting expansion beyond its national borders. In the group’s June 2009 annual report, FirstRand Bank CEO Sizwe Nxasana said that the group was awaiting regulatory approval for
representative offices in Nigeria and Angola, and that there are plans to commence full banking services in Tanzania in the near future. FirstRand Group has also formally expressed an interest in participating in the Nigerian Central Bank’s process of consolidating its banking industry. Sam Moss, director of investor relations at FirstRand Group, explains: “The timing of this process is managed by the Nigerian Central Bank. Entering this process does not mean that FirstRand is doing or is about to do a specific transaction with a specific Nigerian Bank. In line with the group’s strategy, we would be interested in all key segments of banking – namely corporate, investment and retail banking.” FirstRand Group’s expansionary strategy mirrors the approach pursued by other major financial institutions in South Africa. The ‘big four’ in South Africa – Standard Bank, FNB, Absa and Nedbank – already control approximately 90 percent of the retail market for personal transaction accounts, and the leading players recognise that the next step is to target new markets and segments, such as Africa’s unbanked population.
One ‘pioneer’ in growing its presence outside South Africa is Standard Bank, with operations in 17 African countries. In November 2009, the bank revealed that it had been granted a banking license in Angola, enabling it to start operating as a full-service bank there by mid-2010. Clive Tasker, chief executive of Standard Bank Africa, has confirmed Standard Bank’s interest in participating in the next round of consolidation in Nigeria’s banking market: “Standard Bank sees further growth opportunities in Nigeria, both organically on the back of a well established local business, which is fully integrated into the rest of our network, as well as through select acquisitions that can facilitate faster development of our Nigerian business or add market share and scale in select products, infrastructure and business units.”
A strategic partnership between Standard Bank and Industrial and Commercial Bank of China (ICBC) will generate further cooperation benefits and capacity to grow in Africa in the years ahead. ICBC acquired a 20 percent stake in Standard Bank in March 2008. Keith Jefferis, managing director of economic consultancy ECONSULT in Botswana, says South African banks initially expanded into southern and eastern Africa, but are now monitoring opportunities in west Africa, particularly Ghana and Nigeria. Jefferis says: “Standard Bank has been much more aggressive in expanding into Africa. Banks in Africa are very profitable, compared to developed markets, because there are less competitive pressures and consumers are not particularly price sensitive. It is therefore very attractive for South African banks to enter these markets.” Nedbank has also been active in extending its coverage across Africa and, in December 2008, it agreed an alliance with Ecobank Transnational Incorporated (ETI) – the parent company of the Togo-based Ecobank Group. The partnership allows Ecobank to retain its focus on expanding into less mature markets, while also enhancing its service offering in southern Africa. It also enables both institutions to manage their related costs and risks effectively. Alfred Visagie, joint head of the group strategy unit at Nedbank, says the strategic alliance with Ecobank has enabled Nedbank to expand its presence into sub-Saharan Africa and
will consider joint investments as opportunities arise: “Valuations have
come down quite considerably in the past 18 months. Africa presents the next growth opportunity and is a region where our South African clients are also expanding into.” Visagie’s comments come at a time when growth rates in African countries have plummeted as the economic downturn has hit the continent’s economic drivers, particularly trade flows, capital inflows, natural resource sectors and agricultural exports. The recessionary environment has therefore been a major setback for economic progress in Africa, with growth in the continent estimated to drop from 5.7 percent in 2008 to 2.8 percent in 2009. Angola, a subsidiary of Portugal’s Millennium bcp, says: “The main lesson is that we need to be permanently focused on managing the different types of bank risk, especially liquidity and systemic risks.”
Thabi Leoka, an economist for Barclays Wealth, covers emerging markets for the global wealth manager and says that, broadly speaking, African banks have not been as affected by the crisis as banks in the developing world because they were not exposed to the housing market in the US. “However, we do see some contagion – most noticeably the coordinated move by banks to be less
willing to lend due to the shortage of credit,” says Leoka. Visagie explains that South Africa’s banking system has remained stable during the crisis, with capital levels increasing at all banks and liquidity remaining sound: “South African banks have seen a large increase in impairments – in line with deteriorating economic conditions – mostly in the retail market, which is now flattening out, and more recently in the wholesale segments.”
The Bank Millennium Angola spokesman also stresses that in spite of the international financial crisis, Angola continues to enjoy robust stability, which serves as an essential backdrop to the continuing effort to rebuild and modernise the country. This is echoed by Millennium bim – Millennium bcp’s subsidiary in Mozambique – where a spokesman says the bank has not been directly affected by the financial crisis and has been following a programme of branch and ATM network expansion since 2007.
While lenders in Southern Africa have remained relatively insulated from the crisis, recent volatility in Nigeria’s retail banking sector illustrates the distinct characteristics of retail banking from one African country to the next. Industry consolidation has been a feature of the Nigerian retail banking sector in recent years, reducing the number of banks from 89 in 2004 to 24 currently. This figure looks set to fall further after the Financial Times reported in June 2009 that Nigeria’s central bank governor, Sanusi Lamido Aminu Sanusi had suggested that 15 banks might emerge from consolidation in the country. Sanusi hit the headlines again in August 2009 after he dismissed the managing directors and executive directors of five banks, including Afribank, Finbank and Intercontinental, and promised a $2.64
billion bailout to save the country’s banking system from a systemic crisis.
Events accelerated in October 2009, when Sanusi bailed out four more banks and fired three executives, bringing the total pumped into the financial sector to $3.94 billion. Garry Marsh, senior advisor for retail and private banking at Nigeria’s Diamond Bank, says that financial institutions in Nigeria have been badly impacted by the economic downturn, with massive increases in NPLs and significantly reduced profits across the sector: “It is likely that some banks would have run into major problems anyway, irrespective of the downturn, due to poor governance and management.” According to Marsh, the upheaval led banks to reduce the amount of credit available, with almost all banks ceasing lending activity. In Marsh’s view, the turmoil also impacted consumer confidence as many Nigerians are unbanked, and so are unlikely to be clamouring for a bank account after these developments.
Commenting on the likelihood of consolidation among African banks, Marsh expects a number of pan-African players to emerge in the future, such as Standard Chartered, Barclays and South Africa’s Standard Bank: “We expect an increase in the number of foreign banks and M&A activity within Nigeria. Overall, it should lead to a stronger sector with more competitive and better-managed
banks.”
In addition to pursuing organic growth in Nigeria, Marsh explains that Diamond Bank is already operational in the Republic of Benin and intends to establish a presence in Côte d’Ivoire, Senegal and Togo in 2010, as well as continuing its organic growth in Nigeria. Kenyan banks have also been increasing their presence in the region, as John Wanyela, executive director of the Kenya Bankers Association, points out: “Banks such as Kenya Commercial Bank, Equity Bank and Diamond Trust Bank have established a presence in Uganda, Tanzania, Sudan and Rwanda.”
In Wanyela’s view, consolidation remains an option in Kenya, but is not the current priority. “We already have the presence of both South African and West African banks in Kenya, which is healthy for competition.” Expansion led by major players in Africa is likely to dramatically reshape the continent’s retail banking market within the next two years. However, Simon Cavill, communications director at mobile money services provider Mi- Pay, argues that no bank or financial institution in Africa today can ignore the ‘juggernaut’ of mobile-initiated financial
services. Cavill states: “The rapid growth of M-PESA in Kenya, along with the launch of many other mobile phone-focused payments from the likes of Zain or MTN in 2009, has had a seismic effect on the African financial services market.” The success of M-PESA, which was developed by Vodafone and launched in