There is growing speculation within African banking circles that Société Générale (SocGen) could be the next European bank to scale back its Africa operations. The French bank, which has a presence in 18 countries and two French overseas territories in Africa, has had two high-profile product failures that have set back its ambition to become the international bank of choice for Francophone Africa: Manko and YUP. Manko was launched in Senegal in 2013 to provide payments, loans, and savings to the informal sector – a market that has been neglected by traditional banking platforms across the continent. It was quietly closed in December 2020, two years after a €4.5m fraud gave French executives des frissons.
The most recent product to be discontinued is YUP, the mobile money issuer service, which was launched in Senegal and Côte d’Ivoire in September 2017 and expanded to Burkina Faso, Cameroon, Ghana, Guinea, and Madagascar. SocGen saw an opportunity to elevate basic mobile money product offerings with cross-border transfers, savings, and credit. The bank is rumoured to have invested €20m and acquired 2.1m customers by the end of 2020, well short of the 5m customers needed to break even. Price wars with regional fintechs and mobile money operator, Orange, stifled profitability, and YUP will be wound down over a three-month period from March 2022.
On the corporate side, SocGen made structured finance commitments of €11bn between 2018 and 2021 across Africa, of which less than €2bn was done by structured financing platforms on the continent, making suitcase banking a more efficient option for executing big-ticket deals.
As we reported in Foreign banks exit Africa: threat or opportunity?, European banks such as Standard Chartered, Barclays, Credit Suisse and Atlas Mara, are in the process or have already scaled back operations across the continent. Western banks often cite the cost of compliance as one of the reasons they find doing business in Africa so challenging. European regulations on Know Your Customer (KYC) have a fundamental flaw when imposed on African markets: the assumption that there is perfect information about individuals (identity documents, proof of address, proof of employment) and companies (shareholder unwrapping to the lowest common denominator, as though African stock markets and companies are that advanced).
What international banks do not say in their careful crafted statements about their exit strategies is that despite being the big fish with balance sheets that dwarf all African banks, they are struggling to compete in a small pond.
The African banking landscape is bifurcated with local and regional players taking the lead in the deposit-taking retail banking sector while corporate banking has long been dominated by international banks, backed by larger balance sheets, and more sophisticated product offerings. But things are changing.
The big African banks are now accessing the international bond market on a regular basis and able to finance big-ticket deals in both local and foreign currency-denominations. They are also active participants in the syndicated market and moving into correspondent banking and trade finance – areas that were the bread and butter of international banks.
Standard Bank, which is Africa’s biggest bank by market cap ($16bn) and assets ($173bn), swept the board at the 2022 Bonds & Loans awards in March 2022 by winning: project and structured finance bank of the year; West and East Africa investment bank of the year; local markets bond house of the year; and, local markets ESG and Sustainable Finance Adviser of the year. Absa, which is the third largest bank ($88bn in assets), won awards for Sub-Saharan Africa investment bank of the year and, local markets loan house of the year.
Access Bank won one award for the Bank Treasury and Funding team of the year award. Even though the Nigerian lender ranks further down the asset league tables with $30bn, it deserves to be crowned king of a whole new category: the bank to watch.
In 2002, when current Chairman Herbert Wigwe and his business partner bought into Access Bank, it was the 65th largest bank in Nigeria. Today it is number one, after surpassing Zenith Bank in 2021. Access Bank’s growth was driven by a Pan-African expansionary strategy and the acquisition of Atlas Mara’s assets in Botswana, Mozambique, and Zambia.
Access also became the first Nigerian bank to enter the South African market by taking a $60m controlling stake in Grobank Limited, which has since been rebranded as Access Bank South Africa. Grobank used to lend to the agricultural sector and the plan is to start serving retail clients soon. Access recently raised $500m in the international bond market to finance new and existing projects and has publicly stated its ambitions to expand to Algeria, Angola, Côte d’Ivoire, Egypt, Ethiopia, Morocco, Namibia, and Senegal. Perhaps they should give SocGen and Standard Chartered a call…
Access will not have an easy march into Ethiopia, which is Africa’s second most populous country (115m people) and has a low bank penetration rate of 20%. Ethiopia is currently overhauling the financial services code which has kept the market closed to regional and foreign banks and expects to have a first draft ready by December 2022. Several regional and international banks set up rep offices years ago in anticipation of the changes and the two in pole position to capitalise on the liberalisation are Kenya’s leading banks, Kenya Commercial Bank (KCB) and Equity Bank.
Equity Bank (assets: $13.5bn) was in negotiations with Atlas Mara for two years to buy the same assets that Access Bank eventually bought, so we can expect the rivalry between the two banks to intensify. Equity Bank walked away from acquiring the Southern African assets to consolidate its position in East Africa, with smart bets on markets like the Democratic Republic of Congo (DR Congo) where it has a 26% market share. Regional and international banks did not have much appetite for DR Congo because of poor political governance and a weak AML regime. But the administration of President Felix Tshisekedi is making all the right moves including joining the East African Community (EAC) bloc in March 2022, which will give it better access to the ports in Mombasa and Dar-es-Salaam and drive more trade.
Just as in East Africa, we can expect the leading banks in Egypt (National Bank of Egypt and Banque Misr) and Morocco (Attijariwafa, Banque Centrale Populaire and Bank of Africa – BMCE Group) to defend their markets from the ambitions of other regional banks.
Attijariwafa, which paid twice the book value to acquire Barclays Bank Egypt in 2017, operates in 12 Francophone African countries and seven (7) European markets. Perhaps this is the model for the future: African banks charging into Europe?
Africa can learn from the Middle East which went through a similar journey when international banks partially or wholly exited markets following the 2008 global financial crisis. Leading Middle Eastern banks such as Qatar National Bank ($280bn in assets), First Abu Dhabi Bank ($250bn in assets), Emirates NBD ($190bn in assets) and Saudi National Bank, formerly known as National Commercial Bank ($160bn in assets) grew rapidly because they were forced to fill the gap and support clients through the economic recovery. These banks earned the trust of retail and local corporate clients and have overcome handicaps such as the ability to structure complex financing deals, innovate and rapidly deploy new banking products. Some international banks have since returned to the Middle East as the suitcase banking model is no longer as effective as having boots on the ground.
The lesson for Africa, which we have already seen in the oil and gas sector, is that the international banks which make short-sighted decisions will eventually come back, especially when African governments solve for the informal sector, which accounts for 50% of GDP in Nigeria and a higher percentage in most countries.
The banking sector in Africa has enormous potential. The African banks that will win are the ones that can consolidate to build scale, innovate to build new markets, and more importantly, lure top African talent working in leading financial centres back to the continent to support the ambition.
Interesting read on the changing landscape of banking in Africa. The international banks will find it difficult though to come back into Africa with significant scale if they local and African regional banks can get their act together