“JAM yesterday, jam tomorrow, but no jam today.” That was a shareholder’s complaint at the recent results presentation of Investec, a specialist bank that was founded in South Africa and now operates globally. The lament is a familiar one to investors in many of Africa’s fastest-growing banks. The region’s lenders are promising spectacular returns as they expand across the continent. Their ambitions have created a group of home-grown regional powerhouses. Yet the costs of building networks of branches and of investing in growth mean that such returns remain in the distant future.
The main allure of Africa’s banking market is that it is potentially vast and virtually untapped. Banking penetration among the continent’s 1 billion inhabitants varies significantly from country to country, but swathes of the population in Senegal and Tanzania, for instance, have virtually no access to banks (see chart).
The differences within countries are striking, too. South Africa, for example, offers world-class service and technology from the air-conditioned offices and verdant lawns of Johannesburg’s main banking district. Yet just a short bus ride away is the poverty-ridden township of Alexandria, where many people still stuff cash under their mattresses.
Across sub-Saharan Africa as a whole only about a quarter of adults have accounts at formal financial institutions, and only 3% have credit cards. The challenge is finding a way profitably to reach the rest. Bankers typically think of markets as being ready to take off once GDP per-person reaches about $10,000, a level at which it becomes profitable to start building branches and opening accounts. Yet technology such as prepaid cards and mobile banking may be lowering that hurdle rate.
The commoditisation of banking technology and the expansion of firms such as MasterCard, which can provide partner banks with everything they need to run a credit-card business, is giving a big boost to domestic and regional banks that would previously have been outclassed by international rivals. “Technology has been a big leveller,” says Naveed Riaz, who runs Citigroup’s African business. “It is not very complicated these days to have a credit-card or a mobile-banking platform.”
In some respects, African banks are gaining a leg up on international rivals as they install brand new computer…