It’s a bizarre situation: On the one hand, international banking giants like Barclays, Standard Chartered and Crédit Agricole are leaving the continent. On the other hand, African banks and fintechs are thriving. What’s going on?
Capital News Africa: From the Trading Floor – Week 18-2022
It appears as though foreign banks no longer see Africa as an attractive market. As we recently reported, UK banking giant Barclays sold a 7.4% stake in South Johannesburg-based Absa for GBP 526 million (EUR 625 million). This marks the end of Barclays’ 90-year history in Africa. The bank thus holds a remaining 7.4% stake, which we expect will also be sold.
Shortly before this, Barclays rival Standard Chartered announced that it would be leaving several African countries, including Gambia, Sierra Leone, Angola, Cameroon and Zimbabwe. Standard Chartered also will end its consumer, private and small business banking operations in Tanzania and the Ivory Coast and intends to limit itself to corporate customer business in the future. Now French bank Crédit Agricole says it is selling a 78.7% stake in Moroccan bank Crédit du Maroc (ISIN: MA0000010381). Crédit du Maroc is currently valued at MAD 7.7 billion (EUR 730 million) on Casablanca’s stock exchange.
These exits raise the question: Why are foreign banks failing in Africa? The CEOs of Barclays, Standard Chartered and Crédit Agricole stress that the deals are intended to boost the banks’ core capital, but that would be the case with the sale of other shareholdings too.
Interestingly, the three banks are quitting Africa amid an upswing for that country’s financial sector. According to a study by the international accounting firm PwC, the four biggest South African banks almost doubled their profits in 2021 to ZAR 40.6 billion (EUR 2.4 billion). The four banks include First Rand, Nedbank, Standard Bank as well as Absa, from which Barclays has now separated itself. Banks in Kenya, Egypt, Morocco and elsewhere in Africa are also benefiting from the upswing and indeed are even outperforming some of their peers in Europe or the US. Two big reasons for this are an improvement in loan quality and better corporate governance.
African banks are also successfully digitalising their business. Digital disruption and creating a marketplace without boundaries are not just marketing slogans but actually describe what these companies are doing. This is crucial given the challenges in African banking. And they are: Integrate hundreds of millions of people without a bank account on the one hand and finance the growth of young companies on the other.
Unfortunately, the CEOs of the old colonial banks in Africa were too late in recognising that the target clients are not just those who wear a suit and tie but those who have calluses on their hands from daily labour. And when they did realise this, it was too late, as local players like Kenya’s Equity Bank (ISIN: KE0000000554 ) already beat them to these clients. Meanwhile, a vibrant African fintech sector emerged, which is providing those without a bank account access to financial services on their phone.
African banks are driving economic growth and innovation to a higher degree than say in Europe. This is a fact that is very much appreciated by venture capitalists and other financiers of growth companies. Indeed, Fintech News Africa reported that African fintechs raised USD 2 billion from investors last year - the highest level on record. Just last February, Flutterwave took in USD 250 million in fresh capital in a deal valuing the fintech at USD 3 billion.
African banks are also benefiting from the fact that more and more local entrepreneurs are investing in the sectors. For example, the buyer of Crédit Agricole’s stake in Crédit du Maroc is Moroccan conglomerate Holmarcom. Owned by the businessman Mohamed Hassan Bensalah, Holmarcom consists of a range of businesses, including mineral water (Eaux Minérales d’Oulmès); textiles, (Orbonor Textile); furniture, (Meubles Atlas); insurance; and even olive oil. A bank like Crédit du Maroc had, until now, been missing from this unique collection. We applaud this trend.