Barclays Africa wants to become Africa’s “go-to” bank, and its CEO, Kennedy Bungane, is confident it can get there, despite major upheaval in its parent company and concerns about the economic conditions in its key markets. Report by Nadim Shariff.
The Absa-Barclays merger was the largest financial services transaction in Africa in 2013. It was a complex, $1.9bn deal that involved the UK-based lender increasing its stake in Absa to 62.3% while transferring its businesses in Botswana, Ghana, Kenya, Mauritius, Seychelles, Tanzania, Uganda and Zambia to its partner.
“We inherited on day one of this transaction more than 13.4m customers, over 1,300 branches and 10,700 ATMs,” says Kennedy Bungane, the Chief Executive, Regional Management and Strategy, in the new combined bank.
It is from this base that Bungane hopes to expand Barclays to become “the go-to bank in Africa”. The bank has set ambitious targets to get there. By 2016, Bungane wants Barclays to be in the top three banks by revenue in South Africa, Ghana, Zambia and Kenya, to have reduced its cost-to-income ratio into the 50% range and to grow the share of revenues that come from outside of South Africa to between 20-25%.
The Absa merger has, Bungane says, given the bank a platform to invest in its existing businesses, find efficiencies in technology and management, develop cross-border flows and win market share from its competition. Barclays Africa has, he says, set aside R3bn ($285m) to invest in organic growth.
“This is new investment at a time when the industry and the rest of Barclay’s Group is mindful of cost,” he says. “I think it’s something that should show how bullish we are about growth in our existing portfolio.
“We really do believe we can grow revenues within what are some of the fastest growing economies in Africa today. This growth will be anchored and supported by our mothership in South Africa.”
The potential of pan-African banking has returned to the financial pages in Europe and the US in recent weeks, with the announcement of a new player, headed by a name synonymous with Barclays’ aggressive growth in investment banking over the past decade. Bob Diamond has returned to the fray. The former CEO partnered with the Ugandan entrepreneur Ashish Thakkar to launch Atlas Mara Co-Nvest, a cash shell created with the sole purpose of acquiring a banking business in sub-Saharan Africa.
With the former Ecobank CEO Arnold Ekpe onboard as chairman, the group landed John Vitalo, who was chief executive of Barclays’ Middle East and North Africa division, as its CEO. In April, it announced its first acquisitions – a combined $265m for ABC Holdings and ADC African Development Corp – giving it a footprint in five countries in southern and eastern Africa and a stake in Union Bank of Nigeria.
The company also has a memorandum of understanding with the Rwandan government to pursue the privatisation of the Development Bank of Rwanda.
“We welcome it really,” Bungane says diplomatically. “Competition is good. It is good for customers, it is good for growing markets.” The same goes for the Asian and Latin American companies that have been looking at expansion into Africa. These investors, he says, help to develop the nascent capital markets on the continent.
“There is room for everybody,” he says. “As the capital markets mature and bring in new investors, we benefit from it. Certainly our customers and clients do. We are always happy to compete hard and to partner hard with the other banks in the continent. There is space for both competition and collaboration, and we welcome it.”
Although organic expansion – achieved by putting resources behind parts of the business that have historically suffered from underinvestment – is the primary preoccupation of Barclays Africa’s management at the moment, Bungane hints that there might be a war chest available for acquisitions.
The Absa merger excluded Barclays’ operations in Egypt and Zimbabwe, both countries which have high growth potential, but where political turmoil weighs heavily on their short-term outlook. Bungane says that the bank continues to keep an eye on progress in those countries.
Likewise, it monitors the market in places where its presence is still limited to representative offices “where we really can continue to support our cross-border flows in markets that are fast-growing in other parts of the continent where we do not necessarily have a banking franchise.”
Naturally, this means Nigeria. Confirmed in April as the largest economy in Africa, after a rebasing of its GDP, Nigeria is a notable absence in Barclays’ portfolio. The company does have a representative office in the country, offering wealth management and investment banking, but establishing whether that presence is sufficient is ‘top-of-mind’, Bungane admits.
“Nigeria is an important part of the African regional economy,” he says. “Not least because of what was well known to many of us, but is now official, that they have the biggest GDP in the continent. But above just the GDP count, Nigeria is a significant market for the extractive industry, agricultural sectors. It is an important player in West Africa. And yes, there is truth in saying that you can’t really be in Africa unless you are in Nigeria.”
However, he says, it is important amongst all of the hype around Nigeria’s rebasing not to forget about the other large economies in the region. Egypt – the third-biggest economy in Africa – is in many ways a more attractive place for banking. Although the economy has suffered from continuing political upheaval, Egypt remains a huge market, which, Bungane says, “doesn’t get the spotlight it deserves”. Barclays has been in the country for 150 years.
“Barclays Egypt offers us a surplus in skills, in expertise. It is a well-performing enterprise, even through these difficult times in Egypt, contributing significantly to both our top line and bottom line,” Bungane says.
“We have a market share that is about 2% in Egypt, and yet that bank is in the top five of the contributors that we have in the continent. And so, expanding that presence there could actually move the dial for us as well.”