The former boss of British banking group Barclays, Bob Diamond, has said that the biggest opportunities for banking growth in Africa are for regional players who can build branches in several countries, as opposed to bigger, global brands.
“The right model to own a bank in Africa… is a Middle East or African model,” Bob Diamond, the former Barclays executive told delegates during a panel discussion at the Africa Global Business Forum in Dubai last week.
“It’s a regional play. The global banks that had a competitive advantage in capital [in Africa], now have a competitive disadvantage… Being a multi-country, African institution, we believe is the right model,” he added.
Diamond, who resigned as CEO of Barclays in 2012 in the wake of a scandal that involved traders fixing inter-bank borrowing rates in Britain, set up Atlas Merchant Capital in 2013 to invest in financial services businesses, and then co-founded Atlas Mara with Dubai-based Mara Group, which is owned by entrepreneur Ashish Thakkar, with a view to growing a banking business across sub-Saharan Africa.
The company listed on the London Stock Exchange in December 2013, raising an initial $312.4 million to invest in the sector, according to its prospectus, but it has been through a rough ride since. Its shares plummeted from about $12 at the time of the listing to the current rate of about $2.65, as initial investments were made close to the top of a boom in many African markets, which reversed in 2014 as commodities prices slumped.
Speaking on the sidelines of the forum, Diamond said that since the company’s flotation, “the macro environment has been challenging”, with the decline in commodity prices hitting many markets it moved into and weakening domestic African currencies against the US dollar. Many European banks have also pulled money out from African ventures in order to bolster capital ratios in domestic markets.
“But I think those headwinds have become tailwinds,” said Diamond.
“We just doubled down on [the company’s investment in] Nigeria – at a much better level than we had earlier. Commodity prices are strengthening the economies – the agricultural sector, as an example. And I think the future is not global banks owning Africa, its African banks. And I think we’re one of the few banks that can say we are integrated across seven key territories. We’re just beginning,” he said.
Since the company’s formation, it has bought majority stakes in nine banks in seven countries. Its ‘double-down’ in Nigeria has seen it increase its stake in Union Bank from 31 percent to 45 per cent, but only after Atlas Mara itself raised a further $200 million from Canadian investment company Fairfax through an issue of equity and convertible bonds.
Through its Fairfax Africa Holdings arm, the company now owns more than 42 percent of Atlas Mara.
Yet Diamond said that the plan for Atlas Mara was always to invest for the long-term, and some of the money raised is being spent in other areas, such as operations and technology development.
“And having weathered the macro environment, I think we’re stronger. We’re feeling good. But I don’t think these things turn around quickly. For us, there’s a macro piece to this, which is a very long-term demographic,” he said, citing much higher than expected rates of urbanisation in many African countries.
On stage at the forum, Diamond said that the withdrawal by many European banks had created a market where liquidity was constrained in sub-Saharan Africa, but also showed why the opportunities that exist in the market are for regional players.
“Prior to the financial crisis, a big bank like JP Morgan or Barclays would have a capital synergy by having multiple actions across Africa and around the world,” he said.
However, in the wake of the financial crisis, he said that capital controls tightened to a greater extent, forcing global banks to hold more capital even for part-owned ventures overseas, thereby reducing returns on equity. Regional banks, he says, can now earn much higher returns on equity.
Atlas Mara’s plan is to take majority stakes in major banks in up to around 15 markets – and in some countries, to acquire more than one bank and consolidate. The firm wants a sizeable (top five) presence in each one.
It eventually plans synergies by centralising IT platforms and some operations, but Diamond admits this will take “another couple of years”. “We want to make each of our country banks strong on their own before we try and integrate across border,” he said.
It does already have a markets and treasuries arm working across borders, offering currency- and commodity-hedging instruments for small and medium-sized businesses.
“Those aren’t sophisticated from a banking point of view – these tools have been around forever. They’re sophisticated in many African countries, but not in terms of being difficult to do.”
This arm, which Diamond said has been the most successful part of the business, has also carried out trading in sovereign bonds and treasury bills, giving global fund managers exposure to Africa in markets other than equities.
Diamond said that much of its investment in IT will be in ‘core functions’ rather than futuristic fintech plays. Although he acknowledges that online banking will be a boon to many customers in remote locations, branch networks will be important – especially as a Gallup survey of 11 countries found that more than 80 per cent of sub-Saharan Africans do not live within a reasonable distance of a bank branch.
“You really need to drive digital and traditional branch banking,” he told the forum. “I don’t believe in a model of digital-only. Especially for small businesses, for farmers, for people moving to the city. They are going to want services where they are having discussions or doing things that are more complex.”
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