Publications
Partners
Johannesburg - Negative sentiment around Western banks continues to affect financial counters on many sub-Saharan equity markets, including South Africa, but the market mood is often at odds with African banking realities, according to analysts' reports from Imara, the pan-African financial services group.
Imara Asset Management CEO John Legat notes: "We have seen banking results and management statements released in Egypt, Nigeria, Kenya, Mauritius and Botswana. There's no sign of any credit crunch in any of these countries, which is what we had expected, although Nigeria's inter-bank market is becoming less liquid."
Legat believes banks in most parts of the world will try to de-leverage until their capital is adequate to support their asset bases. But "banks in Africa start from a position of strength where there has been little bank lending to begin with and hence no real damage from the global credit crunch".
He adds: "In Africa we don't have a banking system that requires repair."
Imara monitors key sectors to assist international fund managers and professional investors as it markets and manages several funds with positions in African equities.
Jonathan Chew, the portfolio manager of the Imara Nigeria Fund, says in his Nigerian market review: "In common with the rest of the world, inter-bank rates have risen. The main asset quality problem faced by Nigerian banks is a home-grown one stemming from excess margin lending to people for them to bet on the stock market."
A few of Nigeria's top-tier banks have been caught with large margin loan exposures, which are small enough for the country to deal with since no bank in Nigeria is too big to fail. But, in general, the rest of the Nigerian banks are in good health in comparison with some northern hemisphere institutions.
Imara says most of Nigeria's big banks have now reported quarterly earnings to the end of December 2008. The laggards were UBA and First Bank where net profits grew by 17.8% and 26% respectively. Ahead of these were Fidelity Bank (+32%), Zenith Bank (34%) and PHB (+38%). Leading the pack was Diamond Bank (+65%).
Across the continent in East Africa, the banks are also doing well.
"The region's banks themselves largely fund themselves from deposits and when they do lend, interest rate spreads are wide," says John Legat.
According to Imara's East Africa fund report:
- Equity Bank, a micro-lending specialist, increased after-tax profits by 107%. Net loans and advances rose 102% with deposits up 59%. The loan to deposit ratio is 87.6%. Asset quality is being maintained. Non-performing loans remain a stable 6%.
- Net profit at Kenya Commercial Bank (Kenya's largest bank) was up 41%. Loans rose 45.5% with deposits up 34.2%. The loan-to-deposit ratio rose from 68.1% to 73.8%.
- NIC Bank reported a net income increase of 39%. Deposits increased by 42% and loans by 35%.
- In the throes of a change in strategy, Barclays Bank of Kenya posted a 12.5% increase in profits after tax.
To illustrate the contrast with the doom-laden mood in Western banking circles, Legat spotlights the latest results from the Mauritian bank, MCB. He points out: "MCB grew after-tax earnings by 36.5%, but predicted that the second half of the year would be 'more subdued'. That was as negative as they could get."
- I-Net Bridge
