TIA leaders report: Banking 2010
By Lanre Akinola, Peter Guest and Sophie Warnes | Published: 28 July, 2010
Over the course of the past quarter, This is Africa has been speaking with senior figures in the banking industry across the continent, as well as to some of the sector’s leading analysts and investors. No two banks are the same, but across almost all TIA’s conversations, three key themes emerged:
1 The age of the suitcase banker is over
African markets require a depth of knowledge and a level of branding that cannot be achieved using the old model of fly in, fly out. The size and depth of local networks is a fundamental driver of sustainable success in Africa’s diverse – and often challenging – markets.
While there are parallels between economies across the continent, understanding the differences and local idiosyncrasies can make or break a bank’s business. Building the network in Africa and connecting it to international investors opens up lucrative, long-term opportunities. The influx of companies from the Brics and other emerging market investors is likely to be a persistent trend, and any business that can adapt to their interests could be rewarded with dealflow or investment. However, these new investors are looking for demonstrable specialist knowledge and a strong local presence.
Local banks are getting more sophisticated – taking deposits and buying government debt is not the only model in town – so everyone has to raise their game.
[Citigroup; Standard Bank]
2 Get big, go international
Geographic diversification is vital for banking players, not just so that they can capture the full opportunity set available on the continent. The economic downturn revealed that, while African markets were cushioned from the worst of the financial disruption, relying on high growth commodity markets alone is fraught with risk. African economies are coming out of their slowdown at various speeds, and commodity prices are recovering heterogeneously.
Scale and scope are vital for managing the risks of these developing markets and building sustainable businesses. Spreading yourself thin will not protect you, and, of course, scale must be backed by systems and risk management procedures that meet international standards. Clients are going to be multi-geography, so banks must too.
New regulations and new challengers mean that smaller players could be squeezed out of the market if they are not able to scale up. Consolidation among small, or even bigger regional players, could well be on the cards. Being a big fish in a small pond is no longer enough.
[Ecobank; Barclays; Absa]
3 Find new ways to do old business
The next big thing for banks in Africa might just be offering the most plain vanilla services of all – basic deposit taking and transaction banking. With the dust still settling from a financial crisis created in no small part by piling complexity on top of complexity, international and regional banks are looking at the little guy all over again.
In Africa, the huge unbanked population, as well as small and micro-enterprises, represent an untapped opportunity. Unfortunately, these are very difficult market segments to address, requiring innovation in systems and business models. Mobile banking has come a long way, and the entry of cellphone operators into the banking space provides a competitive spur for traditional players to work on their models. Banks that find the formula that mixes the basics with the bleeding edge could find themselves sitting on a demographic goldmine.
[Equity Bank; Kenya Commercial Bank; Rabobank]
