If you’re a regional corporate in Africa, Ecobank is clearly an attractive bank because it can match your business in many countries. If you’re looking for currency solutions Ecobank Trésorerie in Paris can do more than anyone else can do. So there are real economies of scope.
One thing I see missing is economies of scale. This leads to higher costs and expensive banking which is holding back econom growth.
Talking of economies of scale and scope, how important are regional banks in Africa?
First of all, the regional banking has been successful. It’s all pretty much corporate banking. That not surprising because universal banks must have a strong retail footing in a market.
For example, it could be KCB in Kenya, or First Bank in Nigeria. They have low-cost deposits, low-cost funding and also economies of scale in terms of banking machinery because they have many more customers.
And both KCB in Kenya and First Bank in Nigeria are universal banks – they deal with the largest corporates and they also deal with retail customers.
But when KCB expands outside Kenya, it faces a dilemma: should it try to be a universal bank in Tanzania or should it try to be a corporate bank? If it does the latter, which it can because it’s a corporate bank as well in Kenya, then it has to make changes to its culture. So it becomes a different animal in Tanzania from what it is in Kenya. That works but then you also reduce your role to a smaller one in that market and you have to compete against internationals such as Barclays and Stanbic as well as the local universal banks.
If you go for the retail model, you face a heavy investment in establishing a customer base until you reach the kind of size you need to be able to have low-cost funding again and economies of scale. It takes time and money to do that, so most expansion has been on the corporate side, not so much on the retail side.
There are ways of getting around this; one is if you have a currency union. You can get your funding across borders a little bit more easily and, secondly, of course, technology is going to facilitate
Let’s look at Ecobank. It is quite profitable in corporate banking, whereas its domestic banking, which is what it calls its retail and SME banking, is barely breaking even, due primarily because of its focus on corporate banking. KCB is struggling in some of its markets where it doesn’t have enough market share to replicate its domestic banking model. So it’s a mixed bag.
To me, typically corporate banking can be regional or pan-African but universal banking is local. You have to be strong in your market, you have to be among the top three or top four to capture at least a proportion, if not more share of the profit.
Regional banking can make a lot of sense but you need to make sure that you understand what your business model is going to be. If you’re moving toward a universal business model, you’ve got to support that with a technology platform that can easily be exported and cost-effective operations. That’s the difficulty.
From the outside, people talk about Africa as a market but you and I and all your readers know it’s 48 markets at least, and each is different. That’s where the regional banking model needs to be adjusted but I think banks are increasingly learning how to do that.
Do you see regional banking growing?
I see growth and I see a couple of, I was going to say new players, but that’s not entirely true. Bank of Africa, for example, is in 14 or 15 markets; we see Attijariwafa coming in, Société Générale is emerging from its European issues and has a strong position in Francophone West Africa in particular; GTB is expanding from Nigeria, First Bank is also expanding from Nigeria, UBA is also doing well.