The Group Chairman of SBM Holdings, Kee Chong Li Kwong Wing – or KC, as he is widely known – has seen it all before.
He is an old hand in banking and has been an active participant in business and politics in Mauritius since the early days of independence when the country was largely an agrarian society. In the 70s, he was one of the fundamental drivers behind the country’s special economic zones, which helped the country diversify its economy and become a global player in the textiles sector.
He joined State Bank of Mauritius (SBM) two years ago when it was in the news for the wrong reasons. A financial scandal that had led to the collapse of a financial services group to which SBM had been exposed, BAI, had resulted in heavy impairments charges. The group’s heavy investments in technology had also come under scrutiny, with the group accused of lacking direction and focus.
For KC, these issues are now well in the past and the group has ambitious plans that it set out last year. SBM is the second largest bank in Mauritius but for KC the retail market is saturated and future growth will come from expanding its operations and services internationally. The bank has set itself ambitious plans to double its balance sheet by 2020, something KC says it can do given its strong capital ratios.
The bank’s expansion is driven by a number of factors. Alongside Mauritius Commercial Bank, SBM controls 70% of the Mauritian market. However, KC believes the market’s growth will be tepid, largely because it is already well developed.
He says it is over-capitalised, with insufficient projects and avenues for deploying this capital. Diversification and internationalisation have therefore been identified as key pillars of the bank’s five-year growth strategy.
The international expansion is centred on acting as a conduit for international capital to invest into Africa and accompanying the Mauritian government in helping African countries develop special economic and processing zones to drive their industrial policy. KC cites four countries where the government has signed agreements to share the expertise and know-how garnered from its own industrial growth policy of the 80s and 90s.
These are Côte d’Ivoire, Ghana, Senegal and Madagascar. It is only logical for the bank to accompany its government and the country’s export industry into new markets. “We can play an important role in what is called the financial corridor,” he says, noting that Mauritius is an important financial centre for investors into Africa, especially since the country has a number of taxation agreements with African countries.
Last year the bank purchased a small Kenyan bank, Fidelity Commercial Bank, and wants Kenya to become its hub for its activities in East Africa. It already has a presence in India, which will soon become a fully owned subsidiary, and also a rep office in Myanmar (Burma). It has recently acquired a licence in Seychelles and is increasing its footprint in Madagascar.
The plan is also to have two rep offices, one in Dubai and one in South Africa, principally to originate deals but also to do syndication, typical investment and co-financing.
In July, SBM was the first Mauritian bank to secure an investment banking licence. And in August, when African Export-Import Bank (Afreximbank) announced it would be rasing $300m through depositary receipts, SBM was named as the bank arranging the scheme. This was a first, both for an African bank and for an African multilateral finance institution.
SBM is acting as depository and listing agent in order to raise the money through depository receipts on the Mauritian stock exchange, with the aim of offering investors a tradeable and liquid instrument.
KC is extremely proud of the fact that this deal and new structure is a pure “African construct”. That is, raising money for an African institution through an innovative product, overseen by an African bank, using an African platform and using solely African legal and financial advisers to do the structuring, the transaction advice and all else associated with the deal.
“It is a true African play,” as he puts it, and he is proud to be associated with what he calls a “landmark event in the history of African finance”. The $300m capital raising exercise sets important precedents, positioning African institutions and their roles in raising finance, and reaffirms Mauritius’ place as an important regional financial centre.
It is also significant because it comes at time when many European and Western institutions are pulling out of Africa, which will leave an even bigger financing gap. He estimates the trade finance funding gap at $120bn and says that if African institutions are going to take this on, they will have to shore up their capital base. “Trade finance,” he explains, “is crucial for our economies, especially for commodity exporting countries, such as Côte d’Ivoire or Ghana with cocoa, for example.”
Growing the product range
Like most banks on the continent, SBM is putting a lot of time and resources into digital technologies. They are at the heart of the bank’s strategy, which has adopted a “mobile first” philosophy. He says the bank is already working with high-profile Silicon Valley firms on disruptive products such as foreign direct cryptocurrency investment.
The bank is also diversifying its offering in terms of services. One area is servicing high net worth individuals (HNWIs), or wealth management. KC acknowledges this will require the bank to build the necessary HR capabilities to compete with the best-in-class in this category, that is “high-skilled people with good knowledge of [the] global economy and financial markets across different asset classes.”
But it has identified this as a segment that is growing and fast evolving where the bank has a number of advantages over its peers due to its proximity to this high-end category of clients and the infrastructure to cover global markets across different jurisdictions, both in developed and emerging markets. He feels this will be a compelling reason for HNWIs who do not have time or skills to manage investments to use the bank for advice and tailor-made investment solutions for better returns on their surplus cash.