Sim Tshabalala, the recently appointed co-chief executive of South Africa’s Standard Bank, tells Paul Wallace about his plans to grow in Africa and connect the region to the world’s investors. He also explains why replacing Jacko Maree with joint CEOs was the right decision. 

Standard Bank entered a new era in March when Jacko Maree, its chief executive since 1999, retired. Under the leadership of Mr Maree, a highly respected figure in African banking, Standard Bank grew from being not much bigger than its three main rivals in South Africa – FirstRand, Absa and Nedbank – to being easily the largest lender on the continent, with a balance sheet of more than $180bn.

The bank’s decision to appoint joint CEOs to succeed Mr Maree did not go down well with all commentators, however. While few had qualms about the abilities of either of the two new men at the helm, Sim Tshabalala and Ben Kruger, several questioned whether a joint structure would suit the bank.

Making sense

Yet Mr Tshabalala, a 45-year-old who was previously deputy CEO of the bank along with Mr Kruger, insists that the move makes sense, not least because of the close rapport between the two men and the complexity of Standard Bank, which operates banking subsidiaries in the UK and 17 African countries aside from South Africa. “When a business is as big and far-flung as ours – where you’ve got representation across the globe and a large number of legal entities – it makes sense to appoint joint CEOs,” he says. “Most importantly, there’s personal and emotional compatibility between Ben and myself, as well as professional compatibility, given our career backgrounds.”

Some in South Africa speculated the arrangement would be temporary, with Mr Tshabalala, who is eight years younger than Mr Kruger, eventually taking over on his own. But Mr Tshabalala denies there are any such plans. “It’s a permanent structure,” he says.

The main duties of the role have been split. Mr Kruger oversees the personal and business banking (PBB) and corporate and investment banking (CIB) arms, as well as risk and human resources. Mr Tshabalala, a trained lawyer, is in charge of Standard Bank’s legal and finance departments, and its operations in Africa, including South Africa, which is by far its main source of revenue and profit.

The road to continuity

Despite Standard Bank’s new management, the lender is not about to embark on a radical new path. Mr Tshabalala emphasises continuity with the approach of Mr Maree. Essentially, that involves maintaining the bank’s leading position in South Africa and continuing to grow internationally. “We’re not going to change that,” says Mr Tshabalala. “We may tweak things given a changing macroeconomic environment, but the strategy remains.”

Standard Bank has been building its foreign business since the late 1980s, soon after Standard Chartered sold it and it became an independent bank. But in the few years before 2010, its ambitions were particularly bold. In 2007 it bought banks in Argentina and Turkey, and two years later took a 36% stake in Russian investment bank Troika Dialog.

The financial crisis forced a rethink, however. Since then, it has sold up fully in Russia and only retains minority stakes in Argentina and Turkey, while its Brazilian bank has been scaled back. Its has also cut jobs in London and, at the time of going to press, was in the final stages of selling its UK commodities trading division to its largest shareholder, Industrial and Commercial Bank of China (ICBC).

Standard Bank’s international operations are now almost solely centred on sub-Saharan Africa, which vies with developing Asia as the world’s most buoyant region economically. “We had thought that the fast-growing emerging markets were places where a South African bank could become a big player,” says David Munro, the bank’s head of CIB. “But 2008 to 2010 changed that. It forced us to look at our competitive advantages and ask the simple question: where are we going to win? We are going to win by being a champion in Africa and connecting Africa to pools of capital elsewhere.”

Emerging market strategy

Emerging markets are thus still important, but only because they are among the most active investors in Africa, especially when it comes to infrastructure and natural resources. As such, Standard Bank has restructured its subsidiary in Brazil, Banco Standard de Investimentos, so that it purely links its parent to investments flowing from Brazil to Africa. And while it has no plans to launch an operation in India, it is servicing more Indian companies moving into Africa through its offices in London and on the continent.

The fact that ICBC owns a 20% stake in Standard Bank has enabled Standard to win business from the Chinese bank’s domestic clients investing in Africa. Much of this involves transactional, foreign exchange and other types of corporate banking. But it has helped it pick up lucrative investment banking mandates, too, including being an advisor to Metorex, a Johannesburg-listed miner, when it was sold to China’s Jinchuan for $1.1bn in 2011.

Although the bank is deepening its ties with emerging market investors, Mr Munro says that those from the developed world remain vital for Africa. Not only are US, European and Japanese companies looking at direct investments on the continent to make up for subdued growth at home, but portfolio investors from these regions increasingly want exposure to African equities and bonds. “It would be reasonable for us just to talk about Brazil, India and China,” says Mr Munro. “But North America, Europe and Japan are equally as important. Japan is still the biggest investor in some parts of Africa.”

Retail banking prospects

The prospects for retail banking in Africa are good, according to Mr Tshabalala. He says banks will benefit from the same trends that are seeing consumer-related businesses, including retailers and mobile phone companies, thrive. “Africa has got an incredible demographic dividend coming though,” he says. “It looks better than Asia. The population’s younger and it’s got more and more disposable income. Any consumer-facing business is bound to do well.”

Yet he admits retail banking in Africa is far from easy. Standard Bank’s African PBB division, excluding South Africa, made a headline loss of R258m ($30m) last year. Much of this was down to the expense of expanding in high-growth but expensive markets such as Nigeria, Angola, Ghana and Kenya. Mr Tshabalala wants to build market share in those countries, and open representative offices in Francophone west Africa and Ethiopia. But he is adamant that costs will be kept in check, while adding that he has no immediate plans for a major acquisition.

He cites Nigeria as an example of the bank’s approach to growing its subsidiaries. “We’ve looked very hard at acquisitions in Nigeria over the past few years. But at the moment, we’d prefer to grow organically,” he says. “In Nigeria, we have a very small retail bank that is loss-making. We’ve got to do some basic things with it. We’ve got to build market share by getting more reasonably priced deposits and customers that transact. We’ve built the ATM and branch network. We have sort of paused that and are trying to drive volumes and profitability through those.”

Standard Bank is one of the few lenders that can claim to be pan-African. It has a wider presence in the region than any of its South African rivals and, unlike any of them, has full banking licences in Nigeria and Angola, the two biggest sub-Saharan economies after South Africa. It believes its African retail franchise, although not yet profitable, will give it an advantage over its competitors in the long term. “What we’ve managed over the past 25 years is very hard for other banks to replicate,” says Mr Tshabalala. “We’ve got people on the ground in Africa with relationships and transactional capabilities.”

Home market advantage

For all the excitement of investing in countries in the rest of Africa, Mr Tshabalala thinks there is also plenty of opportunity for Standard Bank to expand in its home market. South Africa’s economic growth rate has slowed to about 2%, a level most analysts do not see improving much in the next two years. But Mr Tshabalala wants to tap into demand for consumer credit, which he says is rising along with the country’s middle class. The bank’s priority will not so much be to increase its base of 11 million customers, but to derive more revenues from each of them, partly by cross-selling products.

“The South African market is not saturated,” he says. “The banked population is only about 64%. There’s still a huge pool of people that is unbanked. There are still life insurance and wealth products to be sold. And for the CIB in South Africa, there’s infrastructure to be built and businesses to be funded.”

Standard Bank has come under fire from some investors for the profits it has posted recently. Its return on equity (ROE) last year was 14.2%, a level Mr Munro admits should be improved. “That ROE didn’t live up to our promise,” he says.

Critics often point to FirstRand, the second biggest South African lender, when saying that Standard Bank could be more efficient. FirstRand made an ROE of more than 20% in 2012 and trades at 2.5 times its book value, compared with Standard Bank’s valuation of 1.6 times. But Mr Tshabalala says Standard Bank should not be judged against its local peers, given its geographic diversification and far greater size – its balance sheet is almost double that of FirstRand. “To compare ourselves to our South African competitors is not really useful because we’ve got radically different structures,” he says. “We are different investment propositions. Standard Bank is an international bank. Our competitors are still on the path to becoming international.”

Nonetheless, Mr Tshabalala and Mr Kruger fully intend to increase the bank’s profitability ratios. They believe their strategy of focusing on Africa, whether growing within it or linking the world’s investors and companies to it, is the way to achieve that aim. If they succeed, they will go a long way towards not only consolidating Standard Bank’s position as the biggest bank in Africa, but also silencing sceptics of its decision to appoint co-CEOs.

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