Africa’s biggest bank by assets, Standard Bank Group, has retained its seat at the top of the banking pack in Africa.
This was revealed in a 2021 annual survey pitting the top 100 banks in Africa conducted by global publication Group, IC Publications, through its leading publication, African Business. IC Publications has over 50 years’ experience in publishing magazines, newsletters, country supplements, industry reports and market intelligence on Africa.
The survey ranks Africa’s banks according to their Tier 1 capital which consists of capital + reserves + retained earnings + minority interests. These are published in local currencies and then converted into US$ at the exchange rates at the year-end date in the results (or on 31 December 2020).
Standard Bank Group retained pole position for the second time in a row on the back of massive growth in its tier 1 capital of 24% to $13.8bn in December 2020.
The Group, which wholly owns Stanbic Bank Zimbabwe, shrugged off competition from other leading banks in Africa despite the fact that the South African economy was hit the hardest by COVID 19 due to existing weaknesses and strict nationwide lockdowns.
A statement from African Business said other countries were not as badly affected by COVID 19 as initially feared, buoyed by government support programmes including credit, loan-guarantee schemes and delaying repayments.
The statement noted that Standard Bank’s retail and corporate banking clients received a total of R154bn ($10bn) in pandemic crisis relief. All the big South African banks implemented a government-backed credit extension programme for small to medium-sized enterprises.
“Banks adapted fast to new means of working and working from home, and now have many opportunities to restrain their operating costs and to invest carefully in IT. Reserves were also boosted after banking regulators in many economies told banks not to pay their usual generous dividends so they would have the cash to support clients through the pandemic,” said the statement.
The large reserves that many banks built up may be an arsenal of investment firepower to spend on new opportunities.
“Our view is post-pandemic there are going to be vast opportunities to grow,” said Standard Bank’s CEO Sim Tshabalala in March 2021 when he announced the December 2020 results. The dividend was slashed to R2.40, from the previous year’s R9.94. Tshabalala said new opportunities included accelerating digitisation, investing in non-banking activities and adding new businesses.
National Bank of Egypt climbed two places to come in second place with 26% growth in capital pushing it to $6.7bn. Africa Business noted that the bank still has a long way to go to challenge the top spot in banking.
South Africa’s Absa Bank slipped back to third position with its capital only up 6% to $6.3bn, partly dragged back as the South African rand slipped back 4.6% against the US dollar in the year to December 2020.
Nedbank edged higher from 5th to 4th, with capital also up 6% to $5.5bn.
“North African banks with their emphasis on strong growth, are starting to challenge the continental dominance of South Africa’s big four. Morocco has two banks in the top 10: Attijariwafa Bank climbs one spot to 5th with tier 1 capital of $6bn, while Banque Centrale Populaire (BCP) stands at #7 and $4.7bn,” said the statement.
The Moroccans sandwich South Africa’s FirstRand, down from 3rd to 6th with tier 1 capital down 9% to $5bn (half of this is due to FX).
FirstRand is still the most profitable in the top 10 measured by return on equity (ROE) with a very strong 17% (down from a massive 30% in last year’s ranking), tying with Banque Extérieure d’Algérie. Banque Misr is another ROE star at 15%.
Egypt’s Banque Misr (capital unchanged at $3.4bn in the June 2019 results), climbed from 11th to 8th while Algeria’s Banque Nationale d’Algérie ($3.4bn) and Banque Extérieure d’Algérie ($3.2bn) fell from 8th and 9th to 9th and 10th respectively.
“North Africa now has 45 banks in Africa’s top 100, up from 42 last year and Egypt and Tunisia each have two more high-flying banks. Southern Africa’s share falls back from 25 to 22, with South Africa and Namibia each losing banks from the top ranking, although this could partly be due to currency fluctuations,” said the Africa Business statement.
South Africa has 28% of the total banking tier 1 capital, ahead of Egypt’s 20%, Morocco’s 13.5% and Nigeria’s 10.6%. However, by region North Africa is ahead, with 45% of the total capital (up from 44% last year), compared to 34% in Southern Africa (down from nearly 36%). There are still 12 Nigerian banks in the top 100.
African Business noted that despite the COVID 19 pandemic, African banks continued on their positive growth trajectory, and they nearly all remained profitable.
Across the leading banks, profits fell hard compared to the 2019 ranking, partly driven by increased provision for non-performing loans as banks and regulators prepared for giant impacts on businesses and other borrowers from the global health pandemic.
“By the second half of 2021, many economies are bouncing back or even accelerating, despite a resurgence of the virus in many countries driving renewed lockdowns and restrictions…Consultants at McKinsey say that data from four large economies – Kenya, Morocco, Nigeria, and South Africa – shows that the pandemic’s impact on African banks in 2020 was less severe than initially expected. Because of the giant role that banks play in economies and societies, this could signal a faster recovery for the continent,” said the statement.
Many of the banks African Business spoke to have praised rapid interventions by central banks and ministries of finance, providing them with liquidity and facilities to support their clients and the real economy.
The flipside is that lower national interest rates, needed to provide relief and stimulate investment, actually resulted in a fall in net interest income for many banks. But at the same time banks have experienced increases in loans and deposits, some linked to grant programmes of government-backed relief that the banks have rolled out.
All the big South African banks put billions of rand into reserves to cope with non-performing loans and these could be unwound as business risks return to more normal levels. Non-performing loans are likely to increase because of the economic turmoil and contraction, although this may not be as severe as first feared. Banks in Nigeria, for example, exposed to the oil and gas sector, which saw a large fall in its price at the outset of the pandemic, are hedged and the price has since bounced back to acceptable levels from a risk perspective.
Totting up the totals for this year’s top 100 banks shows that total tier 1 capital was up 10.9% to $124.5bn from S112.2bn in 2020, which in turn was a 10.5% climb from 2019. However, total net profit was $14.4bn, a big 31% fall from last year’s $20.8bn. Africa’s top bank, Standard Bank, said the 43% decline in group headline earnings in the year to December 2020 was “driven by a significant increase in impairment charges”.
McKinsey charts a 50% fall in average return on equity (ROE) for Africa’s banks to 7% in 2020 from 14% the year before. It says this is likely to rebound to close to the levels before the crisis within three years.
In Kenya, Equity Bank had a two-year dividend freeze, which helped it build buffers. Cash and cash equivalents increased 154% to KSh219.5bn ($2bn) in the six months to June 2021 (the ranking is based on the December 2020 full year result) and investments in government debt climbed 46% to KSh315.5bn.
CEO James Mwangi said the bank plans to use the funds to deploy loans quickly, including in Democratic Republic of Congo and in Uganda. It has also been able to cut loan-loss provisions by 64% and grow lending income.
Consultants McKinsey highlighted the speed and boldness with which leading African banks managed the crisis. They urge more attention to three key challenges and opportunities.
Productivity is a key challenge, especially as African banks’ cost-to-asset ratios are more than twice the global average, while the impact on ROEs “has been masked to some extent by high banking margins helped by high interest rates”. Falling interest rates will put the focus on change, and Banks could boost efficiencies by up to 25%. The pandemic has brought opportunities. Customers are much more ready to adopt cost-saving digital banking and avoid branches.
The banks had a crash course in new methods of risk management during the crisis and they can turn this to their advantage with new technologies including analytics and real-time reporting. This is already boosting some banks’ performance, particularly when lending to small- and medium-sized businesses.
Technological change offers huge opportunities to Africa’s top 100 banks as they find ways to develop their internal systems and adopt new partnerships. However, the red-hot growth of financial technology (fintech) across the world, including in Africa, brings challenges and competition.
The banks in the survey are very well established, offering huge client bases, brands and infrastructure. They can leverage this to take advantage of the best of Africa and the world’s fintech revolution. Across the leading banks, profits have fallen hard compared to the 2019 ranking, partly driven by increased provision for non-performing loans as banks and regulators prepared for giant impacts on businesses and other borrowers from the global health pandemic.
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