The Banker’s cover story this month looks at Bob Diamond’s plans to build the leading financial institution in sub-Saharan Africa. A glance at this year’s ranking of the Top 100 African banks will quickly explain why the former Barclays chief would find such a proposition attractive.
Returns in Africa are the highest in the world. Average return on capital in Africa is heading towards 25% – the kind of number global banks scored before the financial crisis but most can only dream about now. This compares with just under 20% for the high-growth Asia-Pacific region, just over 15% for North America and central and eastern Europe, and a paltry sub-5% for western Europe, a return that hardly covers the cost of capital.
What makes the venture even more attractive is that Bob Diamond’s London-listed investment vehicle, Atlas Mara, is buying African banks, uncontested, at book value or below. Investing in Africa is not without its challenges but to get into a high-growth market, with the best returns on capital in the world, at book value does leave a substantial cushion to cover any setbacks.
Nigeria’s rise
In this year’s ranking, the highest scoring bank by return on capital is Ecobank Ghana with a staggering 103% on pre-tax profits of $121.76m. Such a development also bodes well for Atlas Mara; the former chief executive of Ecobank, Arnold Ekpe, who led its rise as a pan-African banking heavyweight, is now chairman of Atlas Mara.
At the other end of the scale, Union Bank of Nigeria – 29.9% of which was bought by Atlas Mara from the Asset Management Corporation of Nigeria, the ‘bad bank’ set up to recover banks that got into difficulties in the Nigerian financial crisis of 2008 – has a return on capital of just 5.87% and a return on assets of 0.38% ranking it 15th and 16th by these metrics, respectively, out of the 17 banks in the Nigeria country table.
Union Bank of Nigeria is actually the former Barclays operation in Nigeria. The bank was nationalised in the 1970s and only privatised again in the 1990s. The macroeconomic and demographic trends together with its new ownership suggest that Union Bank will not be in the lower half of the Nigeria country tables for long.
With close to 180 million people, Nigeria is the seventh most populous country in the world and one that analysts expect to overtake both Pakistan and Brazil to become the fifth largest at some stage – that is if current growth trends continue.
Last year Nigeria overtook South Africa to become the largest economy in Africa, and the 26th largest in the world. With a growing population, much of which lacks access to basic banking services such as deposit and savings accounts, consumer and car loans, and credit, Nigeria presents a huge banking opportunity.
South Africa on top
Topping the Nigerian country table is Zenith, with $3.1bn of Tier 1 capital, an increase of nearly 5% over our 2013 ranking, and a capital level that puts it seventh in the overall ranking. But even though Nigeria overtook South Africa in terms of economic magnitude, South Africa’s banks still dominate the upper reaches of the Top 100 African banks table, commandeering the first four places.
Despite seeing its Tier 1 capital slip by 2.69%, Standard Bank is still handsomely in front with $10.6bn Tier 1 capital, almost 31% more than second placed FirstRand with $8.1bn. Then there is another respective gap of between $2bn and $3bn in capital marking the distance from FirstRand to Barclays Africa and Nedbank in third and fourth places.
Ecobank Transnational Incorporated holds up the top 10 with capital of $2.1bn. The bank is headquartered in Togo but has operations in 36 African countries, more than any other player. Ecobank Nigeria saw profits jump 92% to $64.7m – the second highest in the top African banks by pre-tax profits growth table. Topping this table is Stanbic IBTC Holdings, part of the Standard Bank group, with a 100% uplift in profits to $151m.
Stellar performance
Keeping with the theme of outperformance in Africa, the other nine banks in the highest return on capital table, apart from Ecobank Ghana, all boast returns on capital of between 69% for second placed Faisal Islamic Bank of Egypt and 49% for Kenya’s I&M Bank in 10th position.
Five Kenyan banks are among the 10 African banks with the highest return on assets. All 10 banks have returns on assets of between 5% and 7%. Kenya’s Equity Bank is in pole position with 6.84% as well as holding seventh place in the return on capital ranking with 54.68%. It comes 48th in the Top 100.
The other Kenyan banks in the top 10 for both return on assets and return on capital are I&M Bank – which has returns on assets of 5.14%, exactly the same figure as Kenya Commercial Bank, giving the two banks eighth and ninth placings (Kenya Commercial has higher pre-tax profits giving it the edge in the table) – and Standard Chartered Bank Kenya. Standard Chartered Bank Kenya boasts a return on capital of 51.7%, putting it in ninth place regionally, and return on assets of 6.06%, scoring it an impressive third after Equity and South Africa’s Capitec Bank Holdings.
Outside sub-Saharan Africa, banks from Morocco and Egypt score highly. Groupe Banques Populaire is ranked fifth overall with $3.8bn of Tier 1 capital and its fellow Moroccan top 10 player Attijariwafa Bank lies just behind in sixth position with $3.5bn. Both banks achieved double-digit percentage increases in their capital position in the past year. Finally, Egypt’s strongest player, National Bank of Egypt, came in at number 11 despite an 18% drop in capital to $1.99bn.
The Banker
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