Banking in Africa faces major challenges but the outlook is compellingly positive for players who are committed to investing in the continent's growth.
There is a fashionable belief, that is half right, that banking in Africa is challenging. Where it is wrong is that the African banking scene holds much opportunity for the committed player who realises and accepts those challenges.
The challenges of banking in Africa are diverse and unique to the continent. Africa is a land mass with populations in dispersed regions and this renders banking expensive. On a continent with an underdeveloped technology platform, the cost of physical infrastructure for banks and financial institutions is very high, especially away from towns. As a result, the ability of banks to deploy efficient and accessible banking services has been greatly inhibited. This is made worse by a low savings culture on the continent that in turn limits deposit mobilisation and asset growth.
The absence of credit rating facilities for both individuals and corporations has been a great challenge for banking on the continent. Few credit rating agencies exist in Africa and their ability to provide reliable and timely information is questionable. Risk assessment, a basic tool in banking, is in some of the African countries a complicated exercise. It is difficult to assess default risk levels of individuals and businesses. Loan recovery is rendered costly due to weak judicial systems.
National economic issues
Macroeconomic challenges and a poor economic track record in many countries have also limited the potential of banking. In the 1990s, sub-Saharan African countries experienced balance of payment difficulties and high external debt levels. The high interest rate environment, coupled with exchange rate volatilities, rendered risk management difficult, increased default rates, discouraged businesses from borrowing and raised other challenges such as the ability to hedge capital against devaluation. In the face of these challenges, raising capital to fund banking sector growth has been difficult.
But despite the challenges, Ecobank has always believed in the untapped opportunities and potential of Africa. It was this conviction that prompted Ecobank to commit to the development of banking services and in turn position itself to benefit from the future economic growth prospects of Africa. Ecobank invested in developing a geographical footprint focused on middle Africa, which it identified as potentially the fastest growing sub-region in Africa with a significantly underbanked population, immense natural resources and relatively limited competition. It was because of that geographical platform that the bank introduced rapid transfer and rapid trade services to take advantage of trade and payment flows across the continent. Ecobank's innovative products for savings and current accounts have enabled rapid deposit mobilisation even in areas where other banks have struggled to mobilise deposits. This success is built on our culture of customer service and investment in human resources and technology.
Credit assessment
Ecobank has also confronted the challenge of unavailable credit assessment agencies by investing in appropriate credit procedures and processes and by leveraging the local knowledge accumulated in its footprint.
Bottom-up and unique business and individual risk evaluation processes are central to our risk management, while enhanced risk monitoring and loan recovery procedures are being implemented.
In spite of the volatility of the currencies of the markets in which we operate, Ecobank has been able to develop one of the most effective bank treasury businesses in the countries in which it operates. The group was also determined to develop and utilise the capital markets in Africa to raise capital for expansion. Ecobank was the first institution in sub-Saharan Africa (excluding South Africa) to perform multiple listings on three stock exchanges and raised capital in more than 10 African countries to finance its growth.
Banking opportunities abound in Africa and the outlook is compellingly positive. An expected middle class explosion and strong economic growth on the continent suggests strong opportunities for interest-driven income, not forgetting that transaction-based fee incomes are also expected to grow as trade and payment volumes grow. Our strategy in 2010 and beyond is to utilise our geographical footprint to accelerate our revenue-generation capacity. Emphasis will also be on cost control as our network expansion comes to an end. Risk management and loan recovery are areas of particular emphasis in order to reduce impairment losses.
Our banking subsidiaries have all been recapitalised to better position them to compete more effectively in their respective markets. For us at Ecobank, we don't have an African strategy; Africa is our strategy.
Arnold Ekpe is chief executive of Ecobank
