Banking in Africa: Where to keep yours and the family's money - the wise choices

In 2014 Africa was ranked as the continent of the highest returns on capital in the world

In last year’s edition of “The Banker”, Africa was ranked as the continent with the highest returns on capital in the world. Currently the average returns oscillate around 25%, comfortably beating their next closest competitor, Asia Pacific region, by 5%, and North America as well as central and Eastern Europe by 10%.

Western Europe’s capital is said to yield a mere 5% points return. It’s a huge drop following the financial crisis, which has never picked up to its pre-2008 levels, rendering Western Europe the least competitive.

Banking in Africa is, therefore, a choice which any investor with an eye on rich pickings ought to consider. For a keen financier unfamiliar with the continent’s elaborate array of risks and confused by the lack of clarity in the countries’ legal systems and, even more so, the obliviousness of the typical bank attendants, it can be difficult to begin operation.

The information about which banks to use for best results is equally indistinct. This article aims to shed some light on the Africa’s most lucrative financial institutions.

Pan-African star

Barclays Africa Group and Standard Bank Group (both South African companies) are the two richest banks by assets, with $97.3bn and $184.5bn respectively. But it is another, smaller banking group that dominates the finance sector in terms of returns on investment.

Ecobank Group, a pan-African corporation, has been in the spotlight for its phenomenal returns. The group currently holds the largest network in sub-Saharan Africa, and this expansive attitude pays off. Its Ghanaian branch, for example, yielded the highest profits in the banking industry.

“The Banker” has calculated the average return on capital in Ecobank Ghana at 103%. Customer deposits last year grew by a staggering 30%, the bank’s yearly revenue grew by over $60 million since 2013, while its asset value rose by an impressive $252 million in the same two-year period.

And this is the story in only one-country story.

The Ecobank Group is present in 36 African countries, it operates 1,300 branches and offices and is listed in stock exchanges in Lagos, Accra and the West African Economic and Monetary Union (UEMOA). It is a healthy institution which proved its capability in stirring into high-yielding investments in other countries too.

At the end of 2014, Ecobank Cameroon showed a 51% yearly increase in value and ranked “best bank” in the country by Financial Times. The Togo and Zambia branches are also doing very well, while the newly opened Ecobank South Sudan is bound to bring rapid gains in customer base.

As Albert Essien, the group’s outgoing CEO who won the award for best African Banker of the year 2015, put it: “Our diversified pan-African business model continues to serve us well, with encouraging underlying performance in our line of businesses and geographic areas of coverage. We are pleased with our cost efficiency gains, which led to our cost-income ratio improving in 2014 to 65.4% from 70.1%”

Bank of the Year

In June this year continental development lender African Development Bank (AfDB) awarded the prize for “Best African Bank” to Groupe Banque Populaire, Morocco. Beating stiff competition the group shows aggressive planning and strategy, hungry for expansion, but with limited risks.

GBP Morocco demonstrated pragmatism when acquiring two market leaders in leasing services (Maroc Leasing and Vivalis Salaf) by diluting its risks. At the same time, the group maintains impressive reinforcement of its existing capacity, opening on average nearly 100 new locations each year.

The aim to cater for the large Moroccan population living abroad has always been the banks’ stronghold. With the use of its affiliates in Europe – Chaabi Bank in Spain and the Netherlands as well as other members in Ivory Coast, Central African Republic and Guinea – Groupe Banque Populaire stays well fed with deposits and keeps servicing new loans.

In terms of best retail bank award, however, there were two winners. 

The AfDB chose Standard Bank for the award – Africa’s richest bank by assets and a perpetual leader in customer friendly delivery.

The Global Retail Banking Award organised in London in May this year, went to Ecobank, which triumphed (once again).

Islamic Financial Service on the rise

In the category of best Islamic banking initiative – Sukuk – one of the strongest performances has been entered by Senegal Sukuk. This Sharia-compliant institution benefits from a growing population of Muslims in the region and strong support from the Gulf States.

 Standard’s and Poor’s Islamic Financial Outlook for 2015 stated that the current estimated $1.8 trillion worth of assets held worldwide in Islamic financial institutions should be sufficient to sustain double-digit growth for its affiliates and, over the coming years, may likely reach $3 trillion.

This means the pool of reserves of Sukuks, such as the one in Senegal, is enormous, providing for precious back-up against any risks. The Standard’s and Poor’s document praised the Sukuk initiative in Senegal, dubbing it the “spear header of development.”

In Kenya Standard Chartered is proposing Saadiq – an Islamic banking branch catering to its growing Muslim demand. Kenya’s Islamic banking accounts today for only 2%, but it is one of the fastest growing and due to the assets held by global Islamic finance, poses lesser risks.

Lamin Manjang, the CEO of Standard Chartered, points out that offering financial services catering to Muslim customers is a current world-wide trend. Neglecting this tendency may mean commercial suffocation by competition in the future. One must stay in the game.

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