The rise of Africa’s home-grown financial players has led most international lenders to withdraw from the continent. However, Société Générale and Standard Chartered are not only staying put but marking territory for digital expansion. James King reports.

Soc Gen Africa

On June 1, 2017, Barclays sold a 33.7% stake in its African business, Barclays Africa Group Limited (BAGL). The deal reduced the UK lender’s stake in its African offshoot to 14.9% and permitted, in accounting terms, the deconsolidation of BAGL from its parent. More symbolically, it brought to an end Barclays’ operations on the continent after more than 100 years.

In scaling down its African operations, Barclays is not alone among international banks. Citi and BNP Paribas have both sold their Egyptian consumer banking units in recent years, while Royal Bank of Scotland completed the sale of its Europe, Middle East and Africa private banking business in 2015, among other examples.

But the departure of Barclays is more significant because the number of global banks operating a universal banking model, at scale, across Africa is so small. Today, only Société Générale and Standard Chartered remain.

Tougher capital requirements and the need to streamline global businesses are, in large part, responsible for the exodus of international banks from Africa, accompanied by the challenge of operating in a region where risk management and compliance issues are a growing concern.

“More stringent capital requirements and the need to operate a more efficient capital structure have contributed to some international banks scaling down their presence in Africa. In addition, these banks have been losing market share to local lenders in recent years,” says Francis Mwangi, head of research at Standard Investment Bank in Kenya.

Here to stay?

So what future, if any, do international banks operating a universal business model have in Africa? Operating conditions across the region have deteriorated in recent years, particularly in the biggest commodity exporting economies. But Standard Chartered and Société Générale insist their futures remain bright, full of ambitious growth plans, the investment needed to pursue them and market knowledge accumulated over many decades.

“Our Africa operations represent about 7% of the group’s net banking income. As such, the continent is an important growth driver for our business [and] we are continuing to develop our role on the continent,” says Alexandre Maymat, head of the Africa, Asia, Mediterranean Basin and overseas region at Société Générale. “Between 2014 and 2016, we allocated €4bn in risk-weighted assets to support our revenue growth targets.” 

In the years following the financial crisis, most banks with a global footprint took stock of their operations. While this has led many to reduce their exposure to some emerging markets, Standard Chartered and Société Générale reached the same conclusion: their history and knowledge of Africa was a core competitive advantage in a continent that is blessed with positive structural growth drivers. 

“In November 2015, the Africa management team presented an updated strategy to the bank’s board and investors,” says Sunil Kaushal, regional chief executive of Africa and the Middle East at Standard Chartered. 

“We said that the region’s economy would be under pressure. However, we pointed out that the underlying structural growth rates of the continent were better than many other markets and that it was a good time to invest. We took the longer term, countercyclical view.” 

Big tickets

Nevertheless, the region has been buffeted by a number of economic headwinds in recent years. Sub-Saharan Africa recorded a growth rate of about 1.3% in 2016 according to the World Bank, its lowest in many years, and the rise of pan-African banks and regionally focused lenders has stoked competition. 

“Competition in Africa’s banking landscape is growing. We are not the only game in town and we are facing credible competition from the west and southern African banks,” says Mr Kaushal. “But there aren’t many banks with our unique global and local characteristics.”

This know-how, as well as the connectivity that comes with a long-standing global operation, is giving international lenders an edge in Africa. This is particularly evident when it comes to the numerous major infrastructure and energy deals that need to be executed in the coming years. According to the World Bank, Africa needs to spend about $93bn annually in the coming years to bridge its infrastructure funding gap.

“There has been a progressive sophistication of banking needs linked to the development of big infrastructure and energy projects. In this respect, we think we have a very significant competitive advantage as a global bank,” says Mr Maymat.

These high-value deals are attracting the input of Asian banks accompanying their respective governments and corporates into Africa. “Chinese banks are often complementary in terms of what we do, particularly on infrastructure projects and big-ticket deals. We need the participation of international banks who can bring in additional dollar funding,” says Mr Kaushal.

Retail realities

While massive infrastructure projects might seem the obvious target for an international bank, both Standard Chartered and Société Générale are also investing heavily in retail capabilities. That both lenders are pushing hard on this front is indicative of how seriously both banks take their African operations.

Like few other regions, Africa is a difficult place to carry out retail banking. Average incomes are low and populations outside urban centres can be difficult to reach. The competition is tough, a mixture of local lenders, telecommunications firms and other players constantly spurring innovations in digital banking. But to their credit, neither global lender is getting left behind.

“Through the mobile phone we are experiencing a totally new way of banking in Africa,” says Mr Maymat. “It is addressing the main challenges in African retail banking, including the high costs of running a branch, which can equal that of a branch in France.” 

Société Générale is in the process of launching its agency banking model, YUP, which it hopes will revolutionise its retail banking proposition.  

“We plan to develop our agency banking model across eight countries,” says Mr Maymat. “We have about 400 traditional branches in these markets and we plan to supplement them with about 8000 YUP points of contact. It represents a very large investment in these markets. We have 1.2 million clients in these markets and we plan to double that number over the next three years.”

Standard Chartered, meanwhile, is trialling a full-service digital bank in Côte d’Ivoire, which it aims to roll out on a commercial basis later in 2017. “This digital bank will enable customers to download an app and input their data, to cover basic know-your-customer requirements, upload their documents and photographs and then open an account all on their mobile phone. We aim to launch this across Africa in the coming years,” says Mr Kaushal.

He adds that Standard Chartered has put Africa front and centre of its global digital banking agenda. As a result, the region is first in line for the group’s latest digital retail products and services.

Risk and reward

Despite their bullish outlook, both lenders must still contend with the difficulties of banking on the continent, of which managing risk and compliance standards is only one. 

For international banks, a balance must be struck between meeting the needs of local and regional operating conditions and the demands of international regulatory standards. In essence, this means managing the costs of implementing an effective risk management framework to reap the rewards of doing business on the continent.

“To manage risk you have to recognise and accept that Africa is a high-risk region,” says Mr Kaushal. “Once you accept that, your approach takes that into account in terms of investments in people and technology and so on. We run a tight ship in terms of compliance and controls, both from a regional and global level.”

For its part, Société Générale has aligned its risk policies in Africa with that of the group, while aligning its African risk teams under a centralised body in Paris. “We have also increased our provisioning levels over this period,” says Mr Maymat.

Africa’s last remaining international banks are demonstrating that their universal, multi-market models are still generating solid returns. Though the challenges of banking on the continent are likely to increase, putting pressure on both profits and market share, Société Générale and Standard Chartered are in a good position to handle them. Expansion is the likely next step. For Société Générale, this means pushing beyond its core presence across the continent’s French-speaking markets to capitalise on growth opportunities elsewhere.

“We have to accompany out clients wherever they go, and this means expanding beyond Francophone Africa,” says Mr Maymat. “This has led us to Mozambique and Ghana. We are also exploring opportunities in Kenya, Uganda, Namibia and Nigeria.”   

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