African Banking: Opportunity, Rapid Growth And Risk

As the number of physical banks in Africa diminishes, can existing institutions keep up with rising demand and the challenge of digital banking? For the past quarter-century, banks have endured despite Bill Gates’ famous dictum “Banking is necessary; banks are not.” Can they do it for another 25 years? In Africa, the answer comes in a shade of grey. Long-term survival for brick-and-mortar banks is proving difficult. “In terms of physical branches, Gates is right,” says John Gachora, managing director of Kenya’s NCBA Group. But banks, in the form of well-regulated, governed and managed entities that foster trust, are here to stay, he adds.

Across the continent, the number of banks is declining, driven by tightening regulations, mergers and acquisitions, liquidations and collapses. In Nigeria, only 27 remain out of 89 that existed in 2004. Kenya has seen 10 completed M&A deals and two collapses since 2016.

Despite the erosion, some banks are flourishing thanks to a commitment to keeping pace with changing market dynamics. “Banks are being forced to innovate,” says Joshua Oigara, chief executive at KCB Group, Kenya’s biggest bank by asset value, at just over $8 billion, a substantial chunk of which it amassed through the acquisition of the National Bank of Kenya last year.

Disruptors are having a powerful impact. In South Africa, cloud-based TymeBank had attracted 1 million customers by last November, after less than a year of operation. In Kenya, telecom-giant Safaricom, in partnership with Commercial Bank of Africa, is revolutionizing financial inclusion by offering easy access via mobile-phone app without need for an account, credit access and now savings. In Nigeria, fintechs are on the rise as mainstream banks struggle to recover from a confidence crisis.

Regulators Get Tough

Regulators, meanwhile, are becoming more stringent. Across the continent, policymakers have come under intense pressure to reign in banks’ push for super profits, generating new laws like the capping of interest rates in Kenya. The law was repealed last November after lending to the private sector shrank to just 1.6% of GDP from a high of 25% in mid-2014, according to the World Bank.

Regulators are struggling to keep up with industry trends like cybersecurity, open banking, green financing, and lack of consumer protection in digital financial services and processing of consumer data. But this leaves banks with little room to experiment. A few watchdogs, like the South African Reserve Bank, are willing to ease their rigid […]

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