Stepping up African expansion amid competition – Newtelegraph

With the tough business environment in Nigeria making for fierce competition among industry peers, Tier-1 deposit money banks in the country are boosting their presence on the continent as a diversification strategy, writes Tony Chukwunyem



Seeking to take advantage of the ongoing consolidation in Kenyan banking industry, Nigeria’s biggest lender by assets, Access Bank, announced penultimate weekend that its acquisition of Kenya’s Transnational Bank had been approved by the East African country’s central bank.

The Tier-1 lender, which has operations in seven African countries-Ghana, Gambia, Congo, Rwanda, Zambia,  Kenya, and Sierra Leone-also restated  that it planned to expand to Cameroon and  Mozambique this year.

Speaking during an investor conference call in Lagos on October 31, last year,  the Chief Executive Officer of  Access Bank, Herbert Wigwe, disclosed that the leading financial institution planned to launch operations in four more African countries.

He was reported as telling analysts and other stakeholders that “by this time next year we would probably have added four more subsidiaries.”

There is speculation that the lender has its eyes on 22 more countries on the continent, including South Africa, Ivory Coast, Liberia, Senegal and Angola.

Indeed, analysts believe that in the wake of its merger with Diamond Bank Plc in the first quarter of last year, which made it the biggest lender in Nigeria, Access Bank also wants to be the most dominant Nigerian lender on the continent.

UBA leads   

This means that Access Bank may be aiming to unseat the United Bank for Africa (UBA), which, with 20 sub-Saharan African subsidiaries, is clearly Nigeria’s top lender on the continent.

However, UBA seems up for the competition because in an interactive session with journalists in 2016, UBA Group Chairman, Mr. Tony Elumelu, had disclosed that the lender planned  to extend its banking operations from 18 countries at the time  to 25.

Restating the group’s goal to be the leader in Africa’s financial services sector, Elumelu said: “As long-term investors and pioneers in pan-African commercial and investment banking, we are deeply committed to the markets in which we operate and to harnessing the potential represented by the wider African economy.”

Significantly, while the lender’s financials show that at the end of the first quarter of 2016, its African subsidiaries contributed up to 28 per cent of the group’s operating revenue, their contributions had so grown that by the time the bank’s audited 2017 results were  released, it announced that it expected the subsidiaries to contribute  up to 50 per cent of the group’s operating revenue by 2020.

This prediction looks likely to come to pass because, according to the UBA’s 2018 results, the lender’s African subsidiaries contributed 48 per cent of the group’s operating revenue.

For instance, commenting on the lender’s 2018 results, analysts at Meristem said: “Profit before tax (PBT) and profit after tax (PAT) settled at N106.76 billion and N78.60 billion respectively, with return on average equity settling lower at 16.07 per cent.

“Given its recently approved wholesale banking licences for operations in London and Mali, we expect stronger contributions to global operations. Gross earnings and interest income are thus expected to grow by 10.93 per cent and 7.21 per cent respectively.”

The analysts further stated that “the contribution of its African operations (excluding Nigeria) to gross earnings increased to 48.00 per cent in 2018. In line with its strategic vision to grow revenue and its franchise across the African continent, deposits from customers across Africa, (excluding Nigeria), also grew by 16.19 per cent to N1.24 trillion, as the drive for retail banking penetration across Africa continues to yield desired results. With the recent branch opening in Mali London, we expect improved contributions to gross earnings from operations in Africa and the rest of the world.”

GTB’s strategy

However, while Access Bank and UBA may have the most ambitious Africa expansion plans,  other Tier -1 lenders are also strategising on how to boost their presence on the continent.

Guaranty Trust Bank (GTB), for instance, is aiming to increase what it is currently getting   from its subsidiaries in nine African countries as well as its United Kingdom subsidiary.

In an interview with African Business Magazine published in October 2018, the CEO of GTB, Mr. Segun Agbaje, was quoted as saying “our subsidiaries are becoming more important. Today, subsidiaries outside Nigeria account for 12 per cent of our profit, 15 per cent of loans and 18 per cent of deposits, so it’s beginning to get to where we are aiming. In three years, we hope they will contribute around 20 per cent.”

Shedding light on the lender’s international expansion strategy, he said: “Our franchises are not yet all as successful as we want them to be but you have to be patient and give it time. What you have to realise is that even if you are a big bank in Nigeria, in other countries you are a small bank and hence, you can’t take your strategy from Nigeria into those new markets because you don’t have the balance sheet. We begin by going back to where GTB was 20 years ago and start replicating what we did then.

“Another thing is that we haven’t gone into 20 or 30 countries, we are in 10 countries. We are managing our growth and taking our time to understand the environment and not looking for 30 to 40 per cent. Last year, our subsidiaries made nine per cent, next year  [it’ll be] 14 to 15 per cent – so it’s baby-step growth.”

First Bank

With banking subsidiaries in the Democratic Republic Congo (DRC), Ghana, Gambia, Guinea, Sierra-Leone and Senegal, First Bank of Nigeria Limited has also shown in recent times that its Africa plans are on course.

For instance,  in 2017 when the Bank of Ghana set a new minimum capital requirement for financial institutions  doing business in that country, which they were expected to comply with by  December 31, 2018, the management of First Bank of Nigeria quickly injected  $72.5 million  fresh capital into its Ghanaian subsidiary thus ensuring that the company was fully recapitalised.

Commenting on the move in a chat with journalists last year, First Bank Nigeria Limited’s CEO, Dr Adesola Adeduntan, said: “I am happy to announce to you that we have fully recapitalised our subsidiary in Ghana. You would recall that in the course of 2017, the Bank of Ghana announced a significant increase in the minimum pay up capital for all banks operating in Ghana. I am happy to inform you today that First Bank Nigeria owns 100 per cent of FBN Ghana. We have fully recapitalised FBN Ghana and we are now fully compliant with the new minimum capitalisation.”

Speaking further, he explained that “what we have done with our subsidiary is that we have basically repositioned all of them and they have moved from where I would call them net taker of resources, we have broken even and as we journey in 2019 we expect growth and an increasing contribution to the group’s profitability.”

Scaling back

Analysts, however, note that only eight commercial banks are licensed by CBN (international authorisation) to establish subsidiaries outside the country.

This is unlike the situation at the end of 2008, when due to the 2004 banking consolidation (which increased lenders’ minimum capital requirement from N2billion to N25billion), more than half of the 20 domestically owned Nigerian banks at the time had subsidiaries in at least one other African country, compared to only two in 2002.

Commenting on the offshore expansion of Nigerian banks in the wake of the 2004 industry consolidation, the then CBN Deputy Governor, Dr Sarah Alade, said: “The cross-border expansion of Nigerian banks was motivated by several factors that are both economic and ideological in nature. Motivated by the need to maximise profit and the value of shareholders’ funds, the banks engaged in aggressive regional expansion.

“Additionally, based on the belief that banking systems in many African countries are still less developed and less capitalised than in Nigeria, and the significant opportunities in financing trade between these countries, Nigerian banks saw an opportunity to leverage their success, experience and technology platform to deliver services in these markets, where returns are expected to be at least as high as those in Nigeria.

“At first, the banks’ expansion was concentrated on Anglophone countries, suggesting that language and similarities in the legal environment played a role. It has since moved on to some Francophone countries (like Côte d’Ivoire, Burkina Faso and the Democratic Republic of Congo). A combination of financial reforms in the host countries and a favourable macroeconomic environment in Nigeria played a role in the expansion as high oil prices led to the accumulation of sizeable international reserves of $62 billion the highest in the history of Nigeria – at end-2007.”

But as analysts point out, the cross-border expansion of Nigerian banks was halted by the global financial crisis in 2008 -2009. Reforms introduced by the CBN as part of efforts to deal with the fallout of that crisis saw many banks deciding that they did not have the capacity to operate subsidiaries outside Nigeria.


The view in industry circles at the weekend, however, was that as long as the business environment in Nigeria keeps getting tougher for  lenders,  more banks will  be tempted to explore markets outside the country to find new avenue for growth.

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