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Johannesburg - Up to 90% of Africa’s people do not have access to banking services. With almost a billion potential clients living on the continent this holds enormous potential - and unique risks.
South Africa's four big banks are attempting to exploit the opportunities in varying degrees, but because fewer than 50% of South Africans have access to banking services, expansion should not be at the cost of SA’s principal market, warns Afrifocus Securities analyst Johann Scholtz.
In its report for the financial year to June 30 FirstRand [JSE:FSR] says the case for expansion in Africa is convincing: economies in Africa are strong, political risk has improved and the business climate is continuously improving.
Africa south of the Sahara has been growing at 5.6% a year in recent decades and since 2000 six of the 10 fastest growing economies are in Africa.
Africa represents a huge market of 840m people with buying power of $1 900bn, says the report.
Chief executive Sizwe Nxasana says FirstRand does not wish to plant a flag in every African country. The banking group will therefore focus on countries that it believes can deliver outstanding returns.
Africa is not a "single continent", says the report. In Africa south of the Sahara there are 46 countries, including South Sudan, with vastly differing populations, income levels, growth rates and industrial conditions.
Through First National Bank, FirstRand has operations in Namibia, Botswana, Swaziland and Lesotho.
It also continually invests in new subsidiaries in Zambia, Mozambique and Tanzania. Expansion in Nigeria and Ghana is also being considered.
The size and growth of the market are principal considerations for FirstRand when it considers countries for expansion. In this respect the top countries south of the Sahara are Nigeria, Ghana, Tanzania, Botswana, Kenya, Uganda, Angola and Zambia.
Standard Bank Group [JSE:SBK] has operations in 16 other African countries, including Zimbabwe, Malawi, Mozambique, Namibia, Democratic Republic of Congo, Swaziland and Lesotho.
In its report on the six months to June 30, Standard Bank said Africa was its “core” and it focused only on Africa.
Better regulation, continuing reforms and financial strengthening had improved the economic fundamentals of Africa's largest economies, it said.
But higher food and energy prices, the drought in East Africa and the political unrest in North Africa were factors marring the continent's development.
In presenting its interim results to June 30 Nedbank Group [JSE:NED] said it had a longer-term increased focus on expansion.
This bank is already operating in Namibia, Swaziland, Lesotho and Malawi, but has increased its presence through its alliance with Ecobank, which has operations in 32 African countries.
Absa Group [JSE:ASA] has an 80% stake in Barclays Bank Mozambique and a 55% stake in the Tanzanian National Bank of Commerce. It also has representative offices in Namibia and Nigeria.
The bank’s parent company, Barclays, is however more active in Africa. Through the Barclays offices Absa can therefore offer its clients certain services.
Scholtz says there is possibly too much hype about Africa. “Yes, there is growth, but at the moment it is not profitable growth.”
He points out that African operations reduce banks’ return on capital. “Banks should therefore be very careful in terms of the specific countries they enter and determine whether they can get benefits of scale and operate profitably.”
He says it surprises him that people forget that South Africa is also a developing country with poor banking service penetration.
“Expansion in Africa and South Africa does not have to be at the expense of either, but banks should not take their eye off the ball in South Africa.
“South Africa still offers many opportunities, which have
been exploited by banks like Capitec and African Bank,” he says.
- Sake24
For more business news in Afrikaans, go to Sake24.com.
