South African banking institutions are expected to raise revenues to $4bn by 2022 amid massive upside potential for investment banking products across Africa. This is despite currency adjustment hurdles and the likelihood of foreign investors in Barclays Africa and Old Mutual selling down.
These are the findings of a new study by McKinsey, which highlights the “huge room for growth in meeting unmet needs for borrowing, saving, investing, and protecting” across Africa.
This is because fewer than 20% of African banking customers hold products in areas such as lending, deposits, insurance, and investments.
Experts at McKinsey say if banks across Africa can tap into this and ride on consumer preferences for digital platforms to roll out digital service delivery channels, there will be massive revenue increase prospects.
South Africa is one such African banking market set to benefit from this, with revenues in the local banking sector seen growing. The country has the most sophisticated banking sector in Africa and, alongside Egypt, is the leading banking market.
“Three quarters of the $18bn in absolute retail revenue growth will be concentrated in 10 countries. In absolute terms, the greatest growth will be in South Africa, which will account for $4bn,” says the McKinsey report entitled African retail banking’s next growth frontier.
However, South Africa’s banking sector is also set to be the biggest loser in terms of adjusting for currency losses, although the rand has been firmer in recent weeks owing to political movements seen as supportive of business and economic growth.
Rand volatility could lead to revenue loss
“Adjusting for currency, the big loser in terms of banking revenues will be South Africa, which accounted for 37% of the African revenue pool in 2012, and will account for 26% in 2022. This reflects not only real economic growth that is slower than the rest of the African continent, but also steep depreciation in the South African Rand over this period.”
The possible disinvestment by foreign investors from South African financial services companies listed in London, such as Barclays and Old Mutual, is also expected to be a major drawback for the country’s financial and banking services sector.
Some foreign investors in the London-listed banks operating in South Africa “have been selling down their investments in part because they need to return hard currency returns to UK investors”.
But South African and Egyptian banks are still viewed far ahead of their peers in Nigeria, Kenya, Tanzania and Morocco among others in Africa.
“These markets (South Africa and Egypt) have higher branch penetration – 17 branches per 100 000 adults, versus the African average of five. We estimate that the top five banking markets in Africa – South Africa, Nigeria, Egypt, Angola, and Morocco – account for 68% of the total banking revenue pool,” adds the report.
It also identifies First National Bank as the “best-performing retail bank in the continent’s largest retail banking market”.[Source: News24]