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‘Nedbank can still thrive in Africa’

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‘Nedbank can still thrive in Africa’

There is still a business case for First Rand and other South African banks to continue their operations on the continent despite the mixed-performance of their African operations, the global professional services group, EY has said. 

Analysis on interim results of the big four banks, by EY, shows that earnings were barely positive, up 0.3per cent in real terms. Earnings growth slowed to 5.7per cent for the first half of the year compared to 6.6per cent reported in the same period last year.

Low revenue growth is behind the low growth in profit. Banks have held back on extending credit, particularly in African markets with weak economic activity, said EY’s financial services leader for Africa, Andy Bates.

Nigeria, a commodity-led economy, was in recession and Kenya introduced restrictions on lending, explained Bates. Other economies such as Mozambique also struggled, which weighed down on profits.. “Returns are not as high as banks would like.”

Nedbank’s profits were negatively impacted by the performance of its West African partner Ecobank Transnational, of which it has a 20per cent stake.

Standard Bank’s results were mainly impacted by currency movements, which reduced group headline earnings 7 per cent compared to the previous period. But the group reported an 11per cent rise in profits.

African regions increased their contribution to headline earnings to 29per cent, contributing positively to Return on Equity (ROE) and Headline Earnings Per Share (HEPS) growth, the group said in its interim report. “The top five contributors to Africa Regions’ headline earnings were Angola, Ghana, Mozambique, Nigeria and Uganda.”

“The combination of higher rates, higher cash balances on the back of foreign currency liquidity constraints, flight to quality and improved macros provided support for the Africa Regions’ performance,” the report read.

But Bates explained that there is still a business case for banks to continue operations in Africa. It depends on banks to individually consider making long-term decisions, which may impact shareholder returns in the short term.

The big four banks have a “decent” footprint in Africa. “What we see is a desire to continue to invest, but not as quick as the banks would like,” he said.  There is also the pressure of costs associated with the investment.

But given the average age of the population across Africa, which is quite young and the amount of unbanked people, there is a great opportunity for them to join the formal banking sector, explained Bates. There is not just a demand for banking products, but also for wealth and asset management, insurance and pension products. “This is a massive opportunity not one South African bank can afford to ignore,” said Bates.

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