Four of Africa’s top five most profitable banking markets are in east Africa, with oil producing Ghana from west Africa completing the set. Malawi stands out with a 6.1% return on assets in 2010, almost two percentage points ahead of second-placed Ethiopia on 4.4%.
These are both smaller banking markets with relatively low banking penetration – loan-to-deposit ratios are well below 50%, suggesting very limited lending activity. And both countries have fewer than 10 banks with capital over $2m.
But larger markets are not necessarily less profitable. Kenya, with 21 banks that have almost $19bn in assets between them and a more mature loan-to-deposit ratio of 71%, is third in the ranking (excluding countries for which we have data from only one bank). The aggregate return on assets for Kenya is 4.3%, compared to an aggregate return on assets of just 0.69% for the 1000 largest banks worldwide.
That said, profitability in most of Africa’s largest five markets is comparatively low, with return on assets at 2.1% in Nigeria and below 2% in Morocco, Egypt and South Africa. Angola, another country expanding its oil production, is the exception, with return on assets at 3.33% making it the 10th most profitable banking sector. A loan to deposit ratio of just 56% - compared to 101% in South Africa – clearly indicates that Angola is still a relatively underdeveloped banking market.
