Another Misguided Scramble For Africa? – Nigerian Banks Take Over the Continent

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Between 2003 and 2008 the Nigerian banking sector skilled its personal growth. Nigerian financial institution property (based on BankScope knowledge) went from USD 18.6 bn in 2003 to USD 84.2 bn in 2008, however have since fallen again because of the numerous debt disaster skilled in 2009 (the place the Central Financial institution of Nigeria uncovered roughly ~ USD 10 bn in dangerous money owed) throughout the sector Spurred on by the excessive valuations a number of Nigerian banks established operations throughout the continent with spectacular pace. Earning money from them shall be harder.

Earning money from new operations in new geographies has not been straightforward in Africa. Normal Financial institution of South Africa, acquired the African operations of ANZ Grindleys in 1993 and has solely achieved wholesome ranges of revenue when these operations have been remodeled into massive scale retail operations by way of subsequent acquisitions. And Stanbic (as Normal Financial institution is named to keep away from confusion with Normal Chartered Financial institution), had it straightforward because it was capable of comply with the fast growth of South African company throughout the continent following South Africa’s democratic transformation in 1994.

Most banks which have expanded globally by way of establishing small inexperienced subject operations, have finished so to assist or with the assist of their dwelling nation company base. Nigeria banks haven’t any such luxurious, as Nigeria lacks numerous dwelling grown multinationals that may be relied on to assist fledgling banking operations.

One of many challenges is the tiny dimension of many of those markets. Regulators are more and more requiring that banks function as subsidiaries, and thus must have a full company construction whatever the dimension of the operation. Simply flying administrators between international locations to attend board conferences can change into a big line merchandise on a small financial institution’s revenue assertion.

Pan Africanism could also be within the purchase line of a number of banks, however intra-Africa commerce stays restricted besides in East Africa. Even then the statistics most likely below estimate the extent to which intra regional imports and exports, find yourself exterior the continent and the financing of which will get dealt with by worldwide banks. There may be very restricted commerce between East and West Africa and much much less commerce between West African international locations than between particular person West African international locations and Europe and Asia. EcoBank has lengthy been the champion of pan-africanism however its efficiency has traditionally been under-inspiring, compared to its pan African friends.

To make issues worse, most markets have already got banks that may present cross-border providers and which have related footprints. In East Africa, worldwide banks – Barclays, Normal Chartered and Stanbic have lengthy had regional footprints. Extra just lately KCB and DTB have ambitions to change into regional banks, and have created illustration throughout a lot of the international locations, supported by a robust dwelling nation base.

A few of the Nigerian banks that established cross-border operations already have into bother. Intercontinental financial institution and PHB have each been the topic of regulatory intervention of their dwelling market. To prosper in these new markets the Nigerian Banks must outline their distinctive worth proposition, and this stays difficult.

Belief is essential to banking. Though customers are seldom picky in relation to borrowing, the identical can’t be stated for deposits. Banks in Africa must be legal responsibility led, and must persuade clients that their funds are protected and that they supply a superior service. Nigerian banks should work a lot more durable to ascertain buyer belief, given the customarily poor popularity of their homeland for corruption and fraud.

Many banks in Nigeria depend on Authorities liabilities as a core supply of funding. Nigeria’s federal construction means numerous Authorities deposits at each stage of Authorities and throughout the 36 states. That is seldom the case in the remainder of Africa, which have much less federal buildings, and the place Authorities deposits are usually tightly held by state owned banks.

Cost providers are enjoying an more and more essential position in banking on the continent. As a smaller participant the phrases on which a financial institution’s clients can use different banks infrastructure is a key driver of the success of a retail technique. Sadly in lots of African international locations accessing different banks ATM’s is extraordinarily costly, whether it is attainable in any respect, and this will kill an rising retail banking proposition.

How then can Nigerian Banks prosper:

– Gross sales and repair tradition. The extent of competitors within the Nigerian market has compelled Nigerian banks to good a gross sales and repair tradition that exceeds that of many different banks working on the continent. As new entrants unable to supply scale or distribution, top quality service have to be the central plank of the technique, however managing service requirements throughout a large community of operations requires appreciable consideration to methods and processes, and common benchmarking.

– Quicker, smarter credit score processes. Credit score approval instances and course of throughout many banks in Africa considerably lag these in additional developed markets. A Nigerian “can do angle” to credit score approvals might shake up the market, and shall be key to successful market share

– Develop the franchise Throughout Africa, banks which have massive networks seize a disproportionate share of liabilities and income. At dwelling Nigerian banks have been very aggressive of their position out of the department and ATM infrastructure. It is a lesson that shouldn’t be forgotten of their overseas operations.

– Get the segmentation proper: understanding which segments are probably to be captured and aggressively focusing the proposition on these segments, shall be important to rising the enterprise with a sustainable threat profile.

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Source by Richard Ketley