African banks and offshoots of international banks registered in Africa fill the rankings of our table but there is certainly plenty of scope for further growth.
The Association of African Central Banks (AACB) has calculated that less than a quarter of all Africans have access to any kind of formal banking services at any point in their lives. This is partly because of poverty but also the result of narrow banking industry interests and practices.
For too long, African banks focused on restricting their services to very large companies and high-net-worth individuals. The bulk of the population and small and medium-sized enterprises (SMEs) were ignored, making banking services irrelevant for most Africans. Yet this situation is changing. Greater competition and slowly growing personal wealth are making banks aware that they can no longer restrict themselves to such narrow activities.
In addition, the advent of mobile banking has revealed the potential untapped market, as millions of people now use handsets to save, transfer money and pay bills. The fact that Vodafone has now decided to offer the Kenyan M-Pesa mobile banking service in Eastern Europe demonstrates the success of African mobile banking. Despite the sector’s many failings, banking is the basis of all other economic activity and so more dynamic African banks are a prerequisite for more vibrant economies.
Banks are usually rated by their Tier 1 Capital rather than market capitalisation. As revealed in the African Business ‘Top African Banks survey’, the biggest bank by this criterion is South Africa’s Standard Bank, with $10.3bn in Tier 1 Capital, followed by FirstRand with $7.6bn, then come Absa and Nedbank. Two Moroccan banks, Groupe Banque Populaire and Attijariwafa Bank, take the fifth and sixth positions, with Nigeria’s Zenith Bank in seventh spot.
The competition conundrum
A lack of competition has undoubtedly inhibited the reach of banking services in some countries. Yet few would argue that the brutal cull of Nigerian banks that reduced their numbers to 20, has done anything other than strengthen the sector. On the other hand, Kenya’s 43 banks have created one of the most competitive banking sectors on the continent.
There is little doubt that after years of slow but steady investment, there is now a real possibility of a boom in African cross-border banking. Many countries continue to impose unnecessary restrictions on foreign banks that hamper more general economic development but the benefits of greater competition in neighbouring markets should change their views.
The strength of the Kenyan banking sector is demonstrated by the presence of four banks; Kenya Commercial Bank, Barclays Bank Kenya, Equity Bank Kenya and Standard Chartered Bank (Kenya) among the eight biggest companies in East Africa. With market capitalisation spread over a rather narrow range, from $973m up to $1.5bn, this proximity in size should help to promote competition.
The relative rankings of these four companies changes when measured according to other criteria, such as profitability, but they remain close competitors. The recent results of Standard Chartered Bank (Kenya) have been typical of the market, with a 16% rise in pre-tax profits to KSh13.4bn ($154m) for 2013. Chief executive and managing director Lamin Manjang commented: “We delivered against a balanced scorecard of growth, performance, cost control and risk management.”
International banks, such as Standard Chartered and Barclays, have long operated across the continent but the pool of significant players is growing, as Kenyan companies expand into the rest of the East African Community (EAC), Moroccan banks move south, South African banks look north, and Nigeria’s newly consolidated firms begin to expand into other markets. South Africa’s Standard Bank has even pulled out of its non-African emerging markets’ operations in order to focus on its Africa’s operations.
The message is clear: such banks believe that the continent’s long untapped potential is close to being fulfilled. Diana Layfield, Standard Chartered’s chief executive for Africa, says: “It’s an incredibly exciting phase. What you have seen, particularly in some of the newer local regional banks, is an ability to serve emerging mass market consumers where other financial institutions haven’t necessarily been able to cover effectively.”