SA Banks Seize Opportunities Up North

SA Banks Seize Opportunities Up North

While the domestic market remains the main interest for South African banks, there is no doubt that most of the country’s financial institutions are seeking to expand their operations into the rest of the continent. Some have set up green-field offshoots, as they opt for organic growth, while others have sought to make more rapid growth by buying established financial organisations.

However, a recent report by KPMG warned that competition could make takeovers more expensive than they would justify. This seems to have been borne out by FirstRand’s decision to pull out of the acquisition of Sterling Bank in Nigeria because of the two parties’ inability to reach an agreement on price.

Most analysts agree that the continent’s less-developed economies will enjoy more rapid growth in their banking sectors over the next decade than established banking markets, such as South Africa and Botswana. Other centres of rapid banking sector growth include countries continuing to recover economically from long civil wars, such as Angola and Mozambique; plus new oil producers, including Ghana and Uganda. As a result, South Africa’s leading banks are moving into the rest of the continent in order to maintain their profit margins and, above all, to make sure that they are not left behind.

There have been some suggestions that the global financial crisis could actually work to the advantage of South African banks in terms of their pan-African ambitions. Trevor Hoole, KPMG’s national industry leader for financial services, says that South African banks have up to 10 years to strengthen their operations in the rest of Africa before global banks return to the continent in force. He said: “For our banks, the implication of this is that they need to solidify their footprint in Africa. For the big global banks, I do not expect major mergers and acquisition activity probably over the next five to six years as it is a question of them keeping their powder dry while they sort out their lives again.”

First Rand subsidiary FNB is continuing to expand its services into the rest of the continent. It already operates in Botswana, Lesotho, Mozambique, Namibia, Swaziland and Zambia and is considering moving into Angola, Ghana, Kenya, Nigeria and Uganda. It began operating in Tanzania in July, after securing an operating licence earlier this year. Starting in Dar es Salaam, it plans to open branches and ATMs across the country, plus mobile and online banking services.

Insurance investment
The chief executive of FNB Tanzania, Richard Hudson, said: “Having a physical presence here enables us to tap into one of the most attractive markets in East Africa with excellent economic growth and banking sector performance. The roll out of branches, products and services will be on a phased approach and will be tailored to the needs of the citizens of Tanzania. Although many banks already operate successfully in Tanzania, the market is large enough to accommodate another bank. We remain committed to continually growing our business in East Africa.”

South African banks are also investing in non-banking financial services in the rest of the continent. Absa set up its own life insurance company in Botswana at the start of this year and then bought a Mozambican insurance company, Global Alliance Seguros, in August. Absa’s expansion into other African markets had previously been complicated by the fact that parent company Barclays has long been a major player in the banking sectors of many African countries.

However, Barclays has now decided to merge the African operations of the two companies outside South Africa. The new combined African operations of Absa and Barclays Africa will be overseen by Absa chief executive Maria Ramos, the former head of state-owned South African transport utility Transnet.

The chief executive of Absa Financial Services, Willie Lategan, now has revealed that his company plans to offer a wider range of financial services in markets where either Barclays or Absa itself are already present, and suggested that Absa could expand into other African insurance markets in the near future. South African specialist insurance companies, including Santam and Old Mutual, are already launching services in the rest of Africa, including in Kenya and Nigeria.

Despite the great size of South African banks in comparison with their counterparts elsewhere on the continent, expanding into other markets is not always as easy as it might seem. The African banking landscape comprises a wide range of different regulatory and legal structures.

Although Nigeria offers difficulties, including the number of existing banks in the country and a perception that corruption has not yet been brought under control, the country’s sheer potential makes it a prime target for investment. Hoole said: “Its banking sector experienced substantial consolidation over the last decade and a number of its banks are eyeing expansion across West Africa and further afield.” Some governments are also keen to maintain majority local ownership of local banks.


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Written by African Business Magazine

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