Powered by Africa Business Communities
Ray Faure, Deputy Managing Editor Business LIVE .
With up to 90% of Africa's population still having no access to banking service, the time for colonising the continent's banking sector has probably never been more ripeWith up to 90% of Africa's population still having no access to banking services, the continent must seem like a veritable smorgasbord of opportunity for SA banks. To put it into more palatable terms: that's almost a billion potential clients. Mouth-watering, indeed!
And the time for colonising the continent's banking sector has probably never been more ripe. FirstRand, in its report for the financial year to June 30, noted that the case for expansion in Africa is convincing, pointing out that economies on the continent are strong, political risk has improved and the business climate is continuously improving.
More significantly, the continent, according to the report, represents a huge market of 840 million people with a combined buying power of some US$1,900 billion. Very tempting, indeed.
The opportunities that the continent presents has not gone unnoticed by SA's so-called ?big four? banks. The country's largest bank in terms of assets, Standard Bank, already has operations in 16 other African countries, while FirstRand is involved in seven or so African states. Together with UK parent group Barclays plc, the country's biggest retail bank, Absa, has some 12 African operations while Nedbank operates in four countries beyond SA's borders but, through its alliance with Ecobank, has access to 32 African states. And the local banks are all continuously looking to expand their footprints on the continent.
While Africa beckons, however, I must agree with Afrifocus Securities analyst Johann Scholtz, who warns that expansion should not be at the cost of SA's principal market.
Let's not forget that fewer than 50% of South Africans have access to banking services. So there's still quite a bit of room for expansion right here in our own country. There's also a lot less risk. South Africa indubitably has the safest and most efficient banking service on the continent and, politically, is one of the most stable countries on the continent. As reflected by the recent results of the country's major banks, South Africa also still remains highly profitable for the banking sector.
According to Scholtz, while there is growth in Africa, it is not profitable growth at the moment. He points out that African operations reduce banks' return on capital.
"Banks should therefore be very careful in terms of the specific countries they enter and determine whether they can get benefits of scale and operate profitably," he advises.
Scholtz says it surprises him that people forget that SA is also a developing country with poor banking service penetration.
"More than 50% of South Africans still do not have access to banking services,? he points out. ?So expansion shouldn't be at the cost of our own principal market," he asserts.
I agree with Scholtz that expansion in Africa and SA doesn't have to be at the expense of either, but that banks should not take their eye off the ball in SA. The latter still offers many opportunities which have been exploited by some of the smaller banks like Capitec and African Bank.
So, while the opportunities being afforded by Africa should not go unheeded, don't overlook those still available on our own doorstep. Sometimes it really is a case of better the devil you know than the one you don't.
*This article is to inform and educate, not to advise.
Ray Faure is the Deputy Managing Editor of BusinessLIVE and covers mainly the financial services sector. With almost 40 years' media experience under the belt, he has worked as a journalist and newscaster in the US, UK, Europe, Namibia and South Africa covering everything from politics to health issues and sport and, for the past 15 years, business and finance. A qualified doctor, he has degrees in medicine, psychology and business.