Local banks, now fast expanding into regional operations, as well as
others that are pan-African, are driving the development of Africa’s
banking industry.
By Julius Barigaba The EastAfrican
In Summary
- Banking experts argue that lending to small and medium enterprises (SMEs) has been part of the reason for the success of African banks.
- In East Africa, despite coming at the bottom of the ladder among emerging African banking groups, Kenya Commercial Bank (KCB) leads the pack of homegrown brands followed by Equity Bank and I&M Group at $1 billion.
- Local banks’ flexibility is in the lower borrowing threshold they offer their customers as opposed to foreign banks’ lending threshold, which is as high as $7,807.
- Currently, Africa’s banking sector is the most profitable in the world.
Over the past decade, homegrown banks — led in
East Africa by Kenyan brands — have eroded the market share of the
traditional big boys of the industry, largely Western transnationals.
These local banks, now fast expanding into
regional operations, as well as others that are pan-African, are
driving the development of Africa’s banking industry.
Coming against a backdrop of hardships that local banks suffered in the 1990s, the expansion is a major coup against Western banking groups, most of which started operations on the continent during the colonial era.
The most dominant foreign banks in Africa have been Standard Chartered, Barclays, and Citibank, focusing on the corporate consumer segment in Anglophone countries; French giants BNP Paribas and Societe Generale have ruled Francophone West and North Africa.
But the tide is turning, with local banks slowly taking over the industry in Africa, a scenario that offers attractive investment opportunities for banking models suited to Africa’s business terrain — lending to the small retail client involved in cross-border trade.
In the 16th edition of Private Sector and Development magazine, published by French lending group Proparco, banking experts argue that lending to small and medium enterprises (SMEs) has been part of the reason for the success of African banks.
“Foreign bank subsidiaries have gradually lost their dominant position — probably permanently — to African banks. The new leaders, which are few in number, come from several countries. Morocco and Nigeria have the most extensive networks, followed by South Africa and, more recently, Kenya and Gabon,” said Paul Derreumaux, former chief executive officer of Bank of Africa, one of the most visible banking groups on the continent, with a presence in 14 countries.
In East Africa, despite coming at the bottom of the ladder among emerging African banking groups, Kenya Commercial Bank (KCB) leads the pack of homegrown brands, with total assets of $4 billion, and a presence in Kenya, Uganda, Tanzania, Rwanda, South Sudan and Burundi.
KCB is followed by Equity Bank at $2 billion worth of assets, with a presence in five countries, and I&M Group at $1 billion, operating in three countries.
Experts at Proparco say these Kenyan banks, which account for just two per cent of the continent’s banking industry, are still restricted to one region, but the fact that they feature among the giants of Africa’s banking models shows their growing financial muscle.
“A number of local commercial banks have successfully expanded regionally. They differ from the international banking groups in a number of ways. These include flexibility and leveraging technology to service customers. They focus on retail and on growing SMEs, building loyalty among their customers,” said Sarit Raja Shah, chairman of I&M Tanzania and director of Bank One.
Local banks’ flexibility is in the lower borrowing threshold they offer their customers as opposed to foreign banks’ lending threshold, which is as high as $7,807.
Risk factor exaggerated
Western investors say getting into any industry in
Africa, especially banking, which lacks financial infrastructure and
security guarantees, is too risky.
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