#31 - February 2016 by CPI Financial

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ISSUE 31

ISSUE 31 Walking a new line: the Mauritius issue

Walking a new line:

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COUNTRY FOCUS

Three Mauritian banks weigh in

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POLICY

Djibouti and China

Dubai Technology and Media Free Zone Authority

the Mauritius issue

TECH

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CONTENTS

ISSUE 31

Editor’s Letter Dear readers,

n a recent trip to Port Louis, Mauritius, the sun was shining, the birds were singing, and our group stole a few minutes between meetings to visit the famous citadel perched on the city’s central hill. But by the time our little car crawled up the winding road, heavy grey clouds weighed down on us—just a few photos outside the fortress and the sky had already opened up, drenching us and the city below. Storms often roll in quickly during the rainy season. About this time last year, the Bramer Banking Corporation gale blew in, eventually revealing an alleged $693 million Ponzi scheme that ended the bank’s operations and reshaped the previously quiet banking sector. In its wake a new institution, MauBank, was formed (an interview with CEO Sridhar Nagarajan on pg. 22) but existing banks also had to adapt to a challenging and more mistrustful market. Kee Chong LI KWONG WING, Chairman of one of the traditional leaders, SBM, shared with us what that felt like and how the bank has transformed (pg. 28). Of course the Bramer scandal wasn’t the only struggle last year—the fast-growing AfrAsia Bank was rocked by a painful withdrawal from Zimbabwe and the later resignation of its CEO. Sanjiv Bhasin, fresh in his role as the new CEO, sheds light on AfrAsia’s story and its future (pg. 30). Outside of Mauritius, between commodities prices, China’s economy and external factors, the outlook for much of Africa has not been bright (pg. 44). It has hit Nigeria, the biggest economy and biggest exporter of oil in Africa, particularly hard— but not all is lost, as Danladi Verheijen, Managing Director of Verod Capital, shares (pg. 20). But before any of that—we could not put this issue to press without a look at the massive Barclays Bank announcement, and what that will mean for Barclays Africa (pg. 12). I expect more to this story soon. With that, I’ll let you get to reading.

22 IN THE NEWS 6 News analysis: Quick currency fix? 7

Essential financial news from around the continent

10 Spotlight: Democratic Republic of Congo

HAPPENINGS 12 What’s next for Barclays Africa?

Barclays Bank Plc announces it will exit, Barclays Africa digs its heels in

14 Shortlist announced for Southern

Africa Banking Awards Vote now to recognise leaders in excellence

OPINION 16 Why the South African rand

is falling A myriad of problems have pressured the currency, writes Fatima Bhoola

THE MARKETS 18 Outside of oil

There’s a lot of non-oil potential in Nigeria, but short-term challenges are throwing investors off

COUNTRY FOCUS: MAURITIUS 22 The best of both?

Until next time,

MauBank CEO Sridhar Nagarajan sheds light on the challenges that led to the bank’s birth

18 30

24 Banks in transition

New players make big gains according to our latest data

28 Doubling down on ambitions

SBM Chairman Ke Chong LI KWONG WING says big plans are underway

30 Capitalising on smart growth

Sarah Owermohle

AfrAsia CEO Sanjiv Bhasin on expansion for Mauritian banks

http://cpifinancial.net/blog/author/78/sarah-owermohle

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CONTENTS

ISSUE 31

www.bankerafrica.com Chairman SALEH AL AKRABI Chief Executive Officer ROBIN AMLÔT robin@cpifinancial.net Tel: +971 4 391 4681

Sales Director JON DESPRES jon@cpifinancial.net Tel: +971 4 433 5321

POLICY SPOTLIGHT 32 The road to international trade

Ahmed Osman, Governor of the Central Bank of Djibouti, on a series of key partnerships with China

TRAILBLAZERS 36 Bringing the jungle to the world

South Africa’s Sunrise Productions animation studio finds mass appeal

TECHNOLOGY 38 One factor to rule them all?

Biometrics and strong authentication are vital, says Entersekt in an upcoming webinar

40 Transforming lending with

predictive insights Harnessing real-time data can transform lending, says Ravi Pratap Singh, Executive Director & President of Products at Nucleus

A new survey highlights the biggest risks in the banking world

the horizon Currency pressures, external factors and commodities are shaping the outlook for 2016

SECTOR FOCUS: TRADE FINANCE 48 Facilitating trade growth

Strong international trade is a cornerstone of Egypt’s continued economic prosperity

COVER PHOTO CREDIT: FABIEN WRÉDÉ (CHUCKAS MCFLY)/FLICKR

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ISSUE 31

ISSUE 30

Walking

2015 IN REVIEW A look back...

Editors WILLIAM MULLALLY william@cpifinancial.net Tel: +971 4 391 3718

Business Development LIAM O’CONNOR liam@cpifinancial.net Tel: +971 4 391 4680

JESSICA COMBES jessica@cpifinancial.net Tel: +971 4 364 2024 SARAH SPENDIFF sarah.spendiff@cpifinancial.net Tel: +971 4 391 3729

DANIEL BATEMAN daniel@cpifinancial.net Tel: +971 4 375 2526 NIKHIL NIDHAN nikhil@cpifinancial.net Tel: +971 4 391 3717 MOHAMED MAKSOUD mohamed@cpifinancial.net Tel: +971 4 433 5320

Contract Publishing Editor ISLA MACFARLANE isla@cpifinancial.net Tel: +44 127 332 7106

Head of Contract Publishing & Business Development VINOD THANGOOR vinod@cpifinancial.net Tel: +971 4 391 3725

Chief Designer BUENAVENTURA R. JALUAG, JR. jun@cpifinancial.net Tel: +971 4 391 3719 Creative Designer Senior Designer ANA MAKSIC FLORANTE MAGSAKAY ana@cpifinancial.net florante@cpifinancial.net Tel: +971 4 391 3723 Tel: +971 4 391 3724 Online Editor MATT AMLÔT matt@cpifinancial.net Tel: +971 4 391 3716

Finance Manager UMAIR AHMED KHAN, ACA umair@cpifinancial.net Tel: +971 4 391 3727

Online Content Manager SIYA PAINAYIL siya@cpifinancial.net Tel: +971 4 391 3722

Data Analyst NADINE ABOUZEID nadine@cpifinancial.net

Making contributions that matter

Banco Nacional de Angola Governor José Pedro de Morais Júnior on cleaning up banking

OPINION

Good aims, bad outcomes

POLICY

New chapters in Ugandan banking

SECTOR FOCUS

Islamic debt as a salve?

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contents031

COUNTRY

Three Maurit FOCUS ian banks weigh in

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POLICY

Djibouti

and China

TECH

Insight of

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Editor, Banker Africa SARAH OWERMOHLE sarah@cpifinancial.net Tel: +971 4 375 2527

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OUTLOOK 44 Tough times ahead, but growth on

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NABILAH ANNUAR nabilah.annuar@cpifinancial.net Tel: +971 4 391 3726

GOVERNANCE 42 Slipping on peels

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To all our customers thank you for voting us the Best Islamic Bank - EA in the Islamic Business and Finance Awards 2015.

Offering Shariâ&#x20AC;&#x2122;ah Compliant Products and Services - talk to us today. For more information please contact our 24hr Contact Centre on +254 020 282 089 00 0703 088 900 www.nationalbank.co.ke callcentre@nationalbank.co.ke

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NEWS ANALYSIS

Quick currency fix? Zimbabwe intends to switch its reserve currency to the yuan—but to what end?

ollowing a state visit to Zimbabwe by Chinese President Xi Jinping, the Reserve Bank of Zimbabwe (RBZ) announced that it would make the yuan an official currency as part of a deal that included China’s cancellation of Zimbabwe’s $40 million debt. Following the announcement, Zimbabwe Minister of Finance and Economic Development Patrick Chinamasa said that, “There cannot be a better time to do this.” In 2014, RBZ authorised use of the US, British, South African, Botswanan, Australian, Indian, Chinese, Japanese, and Euro zone currencies after its own currency, the Zimbabwe Dollar, failed on the back of extreme inflation. In the years since, investors have generally dealt in the US dollar and the rand. But the relationship between Zimbabwe and China has been growing steadily through Chinese infrastructure investment and increased trade relations. However while the currency shift should further promote Chinese investment and trade, a strong relationship with China can’t sustain Zimbabwe’s economy on its own.

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"Under any currency regime change, sustained structural reforms and sound macroeconomic policies would help to strengthen investor confidence in the country and help address external competitiveness challenges," said Zuzana Brixiova, a Moody's Vice President, Senior Analyst and co-author of Moody’s recent report on the currency decision. Though Zimbabwe is in the midst of an International Monetary Fund (IMF)-supported economic reform, significant challenges in the business environment and banking sector remain. Then there’s the government expenditure itself, with unsustainable public sector wage spending on top of high current account deficits, low international reserves and dragging external debt. These issues can be aided in some part by increased use of the yuan, but structural reform and multilateral cooperation, particularly with lenders, are necessary to make a sustained difference. “Among the practical challenges of increasing the presence of the yuan in the domestic market are liquidity shortages and the Zimbabwean population's practice of using the US dollar rather

The now-defunct Zimbabwe Dollar (pictured) has been replaced by international currencies, with the Chinese yuan now bidding to be first choice (CREDIT: STEVEN ALLEN/SHUTTERSTOCK)

than other currencies already available under the multicurrency regime. In the near future, the use of China's yuan in Zimbabwe will likely be limited to trade between the two countries,” the Moody’s report noted. International limitations on Zimbabwe do appear to be softening. On 15 February 2016, the European Union (EU) extended its sanctions against President Robert Mugabe, his wife Grace, but lifted restrictions on 78 people and eight entities formerly on the list. EU officials also recently allowed that Mugabe could travel to the region on African Union business, as he is in his year-long tenure as chairman. But on the other end of the spectrum, Barclays Plc was recently penalised $2.5 million by the US Department of Treasury’s Office of Foreign Assets Control for violating US sanctions on governmentbacked entities in Zimbabwe. Meanwhile, protestors convened over what they said was Standard Chartered Zimbabwe’s ‘centralisation’ of funds outside of the country. Several foreign international banks have bowed out of Zimbabwe in recent years, either through government regulatory challenges or simple pressures of the market.

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13/03/2016 10:23

IN THE NEWS

RATINGS REVIEW BANKS AND BUSINESSES Moody’s Investors Service assigned Aa1.za long-term local-currency and P-1.za shortterm local-currency ratings to the ZAR 15 billion domestic medium term note (MTN) programme established by Bank of China Limited (BOC)’s Johannesburg location. Moody’s upgraded Investec Bank Plc’s rating from A3 to A2 with stable outlook and the the senior unsecured and issuer ratings of holding company Investec plc to Baa2 from Baa3, citing improved fundamentals. Capital Intelligence affirmed Banque du Caire’s financial strength rating at ‘BB-‘ on the basis of its comfortable liquidity and strong profitability, restrained by its high exposure to systemic risk.

ON THE RECORD

For more than two decades, Sudan has left no stone unturned trying to normalise relations with the United States. However, it takes two to make a tango; foreign policy hawks in the successive US administrations regrettably continue to block all potential routes towards a real rapproachement with the Sudan. –M ubarak M. Musa of the Embassy of the Republic of the Sudan to the US, drawing on regional support from the African Union for the US to end sanctions against Sudan.

Zenith Bank UK opens its first branch in Dubai

S&P assigned South Africa’s Liberty Group a ‘zaAAA’ rating, noting its solid competitive position, stable earnings and financial risk profile.

SOVEREIGNS Standard & Poor’s revised Democratic Republic of Congo’s outlook to negative while affirming its ‘B-/B’ ratings, noting that external vulnerabilities and political uncertainties are increasing. S&P affirmed Mozambique’s ‘B-/B’ rating with a negative outlook due to its continued weak external position and the possible impact of the state-owned EMATUM fishery on the sovereign. S&P lowered Gabon’s ratings from ‘B+’ to ‘B’ with a stable outlook on the back of slower oil production and low oil prices putting pressure on the country’s fiscal balances. Moody’s affirmed Kenya’s B1 sovereign rating with a stable outlook, stating that it expects solid growth and narrower deficits due to new policies. S&P lowered Angola’s ratings to ‘B’ From ‘B+’ as oil prices weaken projections for the country’s growth, external flows and stocks.

(L-R) Arif Amiri, CEO of DIFC Authority and Jim Ovia, Founder and Chairman Zenith Group.

igeria’s Zenith Bank (UK) Limited has opened its first branch at the Dubai International Financial Centre (DIFC). The new branch plans to offer primarily trade finance and commercial banking solutions to the Dubai market. “Dubai is an important strategic market for Zenith Bank and our international customers based at DIFC. The increasing trade flows from Asia into Africa through Dubai makes the emirate an ideal destination for our regional office. This advantage, combined with DIFC’s advanced regulatory environment, influenced our decision to set up a presence in Dubai. The move enables us to continue implementing our strategy of delivering the bank’s cutting-edge services to our customers globally and supporting their dynamic needs anytime and anywhere,” Jim Ovia, Founder and Chairman of the Zenith Group, said.

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IN THE NEWS

IMF extends agreement with Kenya The Executive Board of the International Monetary Fund (IMF) approved an extension of both Kenya’s Stand-By Arrangement (SBA) and Arrangement under the Standby Credit Facility (SCF) to 15 March 2016, after a request by Kenyan authorities. Officials said they needed time to finalise fiscal measures for 2015/16 and implement structural measures under the programme. The 12-month SBA/SCF with a combined total access of $687 million were approved by the IMF’s Executive Board on 2 February 2015. Following the the first review in September 2015, $610.7 million was available for Kenyan authorities in the event of systemic shocks, but the funds are precautionary.

Halla Sakr the first woman to head Barclays Egypt as Managing Director Barclays Bank Egypt announced the appointment of Halla Sakr as Managing Director of the bank, making her the first woman to head Barclays Bank Egypt. Sakr has worked in the banking industry for more than 30 years, holding various positions in retail, corporate and risk management throughout Egypt and the Middle East. “We are pleased to announce the appointment of Halla to the position of MD for Barclays Bank Egypt. She is a seasoned banker with excellent leadership qualities and a long history of success in delivering results. She is very well known and highly respected in the market and fully understands the key drivers of the Egyptian market. Her appointment is expected to ensure continuity and achievement of the strategic goals that Barclays Bank Egypt has set itself,” Mizinga Melu, Barclays Africa Regional Management Chief Executive, said.

ITFC supports the groundnut sector of Senegal with a $75 million agreement with the government The International Islamic Trade Finance Corporation (ITFC), a member of the Islamic Development Bank (IDB) Group, signed a $75 million Syndicated Murabaha Financing agreement on 21 February 2016 with the Government of Senegal and Suneor. The agreement aims at financing a significant part of the 2015-2016 groundnut campaign. ITFC previously provided $30 million facility to the Government of Senegal and Suneor for financing the 2013/2014 groundnut season. The new $75 million financing will allow Suneor to purchase and process more than 150,000 tons of groundnuts into animal feed to be exported to international markets. Following a good rainy season, the total output for the country for the 2015-2016 season is expected to be exceptional and reach one million tonnes.

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AfDB hosts expert meeting on Continental Free Trade Area

The African Development Bank (AfDB) hosted a two-day Expert Group Meeting from February as part of a series of preparatory activities for the Continental Free Trade Area (CFTA) launch in 2017. The two-day meeting of stakeholders, experts and representatives of regional economic blocs produced preliminary outlines for the CFTA agreement. A detailed plan and timeline for the development of a full draft agreement and Terms of Reference to guide the preparation of respective sections of the agreement was also created. The CFTA is one of the fast-track initiatives and a key milestone under the African Union Agenda 2063.

AXA becomes AIG shareholder to provide insurance in Africa

Africa Internet Group (AIG), an African e-commerce group, and AXA, a global insurance and asset manager, have partnered for AXA to become the exclusive provider of insurance through Jumia and other AIG platforms. As part of the partnership, AXA will also become a shareholder of AIG, along with MTN, Rocket Internet and Millicom— AXA will invest EUR 75 million and own approximately eight per cent of the capital of AIG. Completion of the transaction is subject to customary closing conditions. “The internet is creating unparalleled opportunities for consumers and businesses in Africa to connect and do business in a new way. We continue to be very excited about the growth prospects of Jumia and this new partnership will enable us to capture them,” said Sacha Poignonnec and Jeremy Hodara, founders and co-CEOs of Jumia and AIG, in a statement. “We expect Africa’s e-commerce and online businesses to develop rapidly as a result of the strong growth of the middle class, coupled with the increasing mobile phone and internet penetration.”

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13/03/2016 10:28

Africa Finance Corporation increases stake in Cabeólica, launches new loan

Al Ahly Capital makes offer for CI Capital

Africa Finance Corporation (AFC) has completed the purchase of InfraCo Africa’s stake in the Cabeólica Wind Farm, the first privatelyfinanced sustainable wind farm on a commercial scale in Sub Saharan Africa. The deal follows the share purchase agreement signed on 6 May 2015 in which AFC agreed to purchase InfraCo Africa’s remaining stake in the project. “We are very excited The wind farm provides energy access to 360,000 (CREDIT: to take a larger part in this STEPHEN BURES/SHUTTERSTOCK). ground-breaking project. Cabeólica provides access to electricity for 360,000 people, which is about 72 per cent of the Cape Verde population,” Andrew Alli, President and CEO of Africa Finance Corporation, said. The Corporation has also launched a $150 million two-year loan, arranged by Bank of Tokyo-Mitsubishi UFJ, Citibank, Emirates NBD, JP Morgan and Standard Chartered. Previously, in May 2015, the AFC issued a six times oversubscribed $750 million Eurobond and it has a current balance sheet of $2.9 billion, according to the institution.

Commercial International Bank (CIB) has reported that it has received an approach from Al Ahly Capital Holding regarding its wholly-owned subsidiary CI-Capital Holding. In a statement to the Egyptian Exchange, CIB noted that Al Ahly, a subsidiary of National Bank of Egypt, had only expressed interest at the time and an offer had not been made. Another offer for roughly EGP 1 billion is reportedly on the table as well. On 17 December 2015, CIB confirmed that it had approved a proposal to move forward with discussions on the potential acquisition of CI-Capital with Orascom Telecom Media and Technology Holding (OTMT). OTMT said it aimed to conclude the acquisition through a combination between CI-Capital and Beltone Financial Holding, which it acquired in November last year.

Gulf Capital and Serengeti Capital partner on Africa Gulf Capital, an alternative investment firm in the Middle East, announced that it will expand its private debt business to Sub Saharan Africa through an exclusive partnership with Serengeti Capital, an Africa-focused investment bank, with offices in Accra and London. Gulf Capital’s private debt arm, Gulf Credit Partners, has recently announced the first closing of its second flagship fund, Gulf Credit Opportunities Fund II, at $175 million. The company’s first fund, which closed at around $221 million in 2013, is now fully invested. Walid Cherif, Managing Director and Head of Gulf Credit Partners, said that the new partnership would start on companies in West Africa and later Walid Cherif, Managing the rest of the continent. “Small- and medium-sized Director and Head of Gulf enterprises and mid-market companies in Africa Credit Partners) lack access to financing as banks tend to focus on asset-backed financing and blue chip companies,” he said, adding that the partnership would target these asset-light, mid-market growth companies.

Public prosecutor on Banco Esprito Santo Angola investigation arrested Orlando Figueira, Portugal’s Public Prosecutor, was arrested by the National Unit for Combating Corruption of the Judicial Police in Lisbon, Portugal. Figueira, formerly an attorney and magistrate in the Central Department of Investigation and Penal Action (DCIAP), had led a number of high-profile cases specifically focused on well-known Angolan individuals, such as the prominent banker and former President of Banco Espirito Santo Angola (BESA), Dr. Alvaro Sobrinho. Despite Dr. Sobrinho being cleared by the Court of Appeal in Lisbon on the three occasions cases had been ordered by Figueira, the cases stayed active and as recently as January 2016 it had been suggested further investigations would be launched. This continued investigation of such high-profile figures may now be called into question, as the National Unit for Combating Corruption of the Judicial Police in Lisbon, where Banco Esprito Santo Group is headquartered, found Figueria guilty of taking bribes to make cases against Angolan individuals.

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NEWS SPOTLIGHT DEMOCRATIC REPUBLIC OF CONGO

Inga III Hydroelectric Project seeks foreign investors The proposed Inga III dam will be in addition to the existing Inga I and II dams, pictured (CREDIT: I, ALAINDG/

Ban highlights private sector investment for the Great Lakes region

WIKIMEDIA).

Traders on Lake Kivu, one of the Great Lakes that ties the region together (CREDIT:

STEVE EVANS/FLICKR)

The first phase of the Inga III dam project is planned to start in 2017 if funding needs are met. The 4,800 megawatt potential of the Inga site is estimated at 40 per cent of the continent’s total capacity, and has attracted several multilateral lenders. A Frost & Sullivan report said that the Government of the Democratic Republic of Congo (DRC) will collaborate with several African states, either as offtakers of power or as host countries for transmission lines. South Africa’s cabinet has already approved a treaty allowing South Africa to consume 2,500 MW of the power from Inga III, while other off-takers will include the capital city of Kinshasa and the mining region. “Inga has already been delayed as the selection of a consortium to build the dam is in an unplanned second round of bidding,” said Frost & Sullivan Energy & Power Systems Research Analyst Tilden Hellyer. “While the cost of Inga III and the associated transmission lines have been budgeted at $14 billion, the amount has been underestimated several times in the past and it is unclear what the true cost might be.” Hellver also cited environmental concerns and a long timeline for construction, but said that the DRC has the potential to be ‘Africa’s energy highway’.

nited Nations Secretary-General Ban Ki-moon spoke at a conference in Kinshasa, capital of Democratic Republic of the Congo (DRC), on working past conflict to achieve investment growth. Speaking at the Great Lakes Private Sector Investment Conference in Kinshasa, Ban said that, “Together, [Great Lakes countries] have begun identifying regional investment opportunities, reviewing the investment climate, and beginning a dialogue between public and private sectors on how best to move forward. “I encourage you to create an environment that ensures business operations and investments are responsible and sustainable, and predictable,” Ban said to Government authorities in attendance. “We know that this is an essential ingredient to long-term economic growth and building trust in societies.” To private sector leaders, he said, “Help to integrate the region into international value chains that change the nature of exports from raw materials to value-added exports…We are in the heart of Africa. This region can also be an engine for development and economic growth, building on the progress that has been made over the years. All of you are pivotal to forging that path.”

Orange acquires Millicom’s subsidiary in the DRC Orange and Millicom signed an agreement for Orange’s acquisition of Tigo DRC, Millicom’s operations in the country. The DRC is the largest mobile market in Central and West Africa according to Orange, which said that Tigo is the “perfect fit” for their aspirations to be regional leaders. The deal is still subject to authorities’ approvals.

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HAPPENINGS

Barclays Africa Group has assured customers it is committed.

What’s next for Barclays Africa? Barclays Bank Plc announced it will exit Africa as the Barclays Africa Group underlined its commitment to the continent

arclays Bank Plc announced on 1 March its intention to sell out of the majority of its 62.3 per cent stake in Barclays Africa Group Ltd (BAGL) over the course of the next two to three years, despite BAGL posting a boost in earnings over 2015. Jes Staley, Barclays CEO, made the announcement at the presentation of the bank’s Annual Results, when he also revealed an eight per cent decline in profit for the London-headquartered institution during 2015. “We will further simplify our business by reducing our ownership

in Barclays Africa to a non-controlling, non-consolidated interest,” Staley said, noting that the bank would also “aggressively accelerate” the rundown of its non-core operations over the next two years and exit a significant portion of its operations in Asia and Southern Europe as well. “This has been a very difficult decision to make. Barclays has been in Africa for over 100 years,” Staley said. “But we face a regulatory environment where we carry 100 per cent of the financial responsibility for Barclays Africa and yet receive only 62 per cent of the benefits.”

Staley pointed to difficulties complying with international regulations such as the UK Bank Levy, G-SIB Buffer and MREL/TLAC, but the report shows currency depreciation with the rand also put a lot of pressure on the business. The ZAR depreciated against GBP by 10 per cent based on average rates and by 28 per cent based on the closing exchange rate in 2015. The deterioration was a significant contributor to the movement in the reported results of BAGL, Barclays said. Barclays Bank Plc reported that profit before tax for Barclays Africa Group Ltd (BAGL) decreased one per cent to GBP

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Ü Barclays expects that the Africa exit will bring its cost base down by GBP 2 billion ($2.79 billion) and its headcount by 44,000.

979 million and total income net of insurance claims decreased two per cent to GBP 3.57 million. Yet on a constant currency basis, the profit before tax increased 11 per cent to GBP 979 million, reflecting an increase of 18 per cent in operations outside South Africa and an increase of nine per cent in South Africa. Total income net of insurance claims increased seven per cent to GBP 3,574 million and net interest income increased eight per cent to GBP 2,066 million. Barclays said this growth was driven by higher average customer advances in Corporate and Investment Banking (CIB) and strong growth in customer deposits in retail and business banking (RBB). It also reported net interest margin increased 11bps to 6.06 per cent primarily due to improved asset margins in retail in South Africa. Barclays also said that the Africa operations delivered good growth in RBB retail and corporate banking in South Africa. Wealth, investment management and insurance performed strongly regionally. These findings were echoed by the BAGL FY 2015, released the same day. In its separate report, BAGL noted that revenue from ‘Rest of Africa’ grew 14 per cent and headline earnings rose 17 per cent to ZAR 2.3 billion, to contribute 21 per cent and 16 per cent of the total Group respectively. Revenue grew by six percent to ZAR 67.2 billion, while operating expenses increased by five percent to ZAR 37.7 billion. BAGL’s relatively strong performance helped its shares on the Johannesburg Stock Exchange (JSE) rally four per cent on the day of the announcement, in contrast to Barclay Bank Plc’s 11 per

cent slip that same day on the London Stock Exchange (LSE). In a message shared on the BAGL website, CEO Maria Ramos highlighted BAGL’s growth and assured customers that Barclays Africa is committed to the continent. “Barclays Africa is here to stay,” she said. “In 2013, we fulfilled our ambition to build a leading African bank when we brought together 12 banks across the continent and formed Barclays Africa. We put the future of this organisation firmly in our own hands.” Ramos highlighted Barclays Africa’s strong balance sheet of over $66 billion and its independent listing on the JSE noting that it is well-capitalised to continue operations. She added that Barclays Africa is a leading bank in all of its 12 markets of operation, in which it employs 42,000 people and maintained 12 million customers. “[The Barclays exit] announcement will not affect you, our customers, in any way and we at Barclays Africa will continue to serve you as we have always done,” she said. “Our future as Barclays Africa is very bright and our ambition to be Africa’s leading bank remains unchanged. We are deeply committed to the communities in which we live and work and today, when we announced our financial results, I also said we will invest $93 million in education and skills development across Africa over the next three years. That commitment extends to the way we serve our customers. Nothing in today’s announcements will make us deviate or change our course. We are not exiting our operations in any of our African markets,” Ramos continued.

“Our destiny is Africa and our business is one of shared prosperity. We look forward to building a future and helping you and Africa, prosper,” she concluded. Barclays expects that the Africa exit will bring its cost base down by GBP 2 billion ($2.79 billion) and its headcount by 44,000. The Africa arm of Barclays had held 9.5 per cent of the bank’s riskweighted assets at end-2015. Hours after the announcement, Wendy Lucas-Bull, Chairman of Barclays Africa Group, said she would be stepping down from the Barclays Plc and Barclays Bank Plc boards, with immediate effect, to avoid potential conflicts of interest. Barclays bought a 55 per cent stake in South African bank Absa in 2005 for $5.5 billion, later increasing it to a 62.3 per cent stake and rebranding Absa as Barclays Africa in 2013.

FAST FACTS: Growth in 2015 Ü -1% profit before tax of Barclays Africa Group for Barclays Bank Plc Ü -8% profit before tax for all Barclays Bank Plc operations Ü +8% profit before tax for Barclays Africa Group Ltd Ü +28% profit before tax for Barclays Africa Group Ltd outside of South Africa Source: Barclays and Barclays Africa Group FY 2015 Results

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HAPPENINGS

COUNTRY AWARDS SOUTH AFRICA Best Retail Bank South Africa

• ABSA • Standard Bank • Bidvest Bank • Capitec • First National Bank

Best Corporate Bank South Africa

• Capitec • Nedbank • Absa • Mercantile Bank • Standard Chartered

Best Commercial Bank South

Shortlist announced for Southern Africa Banking Awards 2016 Vote now to recognise the industry leaders in excellence

he annual Banker Africa Awards are continentwide programmes open to all banks and financial institutions in Africa. The aim of the Awards is to recognise outstanding performance and excellence in the financial services industry. In each of four regions, North Africa, East Africa, West Africa and Southern Africa, we hold separate awards competitions. With this issue of Banker Africa we are launching the third Southern Africa Banking Awards, highlighting dozens of institutions across several key regional and country-specific categories:

• ABSA • Standard Bank • Nedbank • Bidvest bank • Capitec • First National Bank

Best Investment Bank South Africa

• Investec • Grindrod Bank • RMB (Rand Merchant Bank) • Standard Bank CIB • Standard Chartered • Sasfin Bank

MOZAMBIQUE COUNTRY AWARDS Best Retail Bank Mozambique

• Moza Banco • Millennium Bim • Standard Bank Mozambique • Banco Unico • BCI Best Online Platform Mozambique

• Moza Banco • BancABC Mozambique • Banco Nacional de Investimento • Capital Bank ANGOLA COUNTRY AWARDS Best Retail Bank Angola

• BFA • Banco Angolano de Investimentos • Banco BIC • Caixa Totta Angola Best Corporate Bank Angola

• Banco Angolano de Investimentos • Banco Economico • Banco BIC • Caixa Totta Angola MAURITIUS COUNTRY AWARDS Best Retail Bank Mauritius

• SBM Bank Mauritius • Bank One • Banque des Mascareignes • HSBC Mauritius • Barclays Bank Mauritius • MCB

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13/03/2016 14:27

Best Corporate Bank Mauritius

• AfrAsia Bank • HSBC Mauritius • SBM Bank Mauritius • Standard Chartered Bank Mauritius • MCB Best Investment Bank Mauritius

• Investec Bank Mauritius • AfrAsia Bank • SBM Bank Mauritius • Standard Chartered Bank Mauritius BOSTWANA COUNTRY AWARDS Best Bank in Botswana

• Bank Gaborone • Stanbic Bank of Botswana • First National Bank Botswana • Barclays Bank of Botswana • Namibia Country Awards Best Retail Bank Namibia

• Bank Windhoek • First National Bank Namibia • Standard Bank Namibia • Nedbank Namibia ZAMBIA COUNTRY AWARDS Best Retail Bank Zambia

• Zanaco • Barclays Bank Zambia • Finance Bank of Zambia • Indo Zambia Bank • Access Bank Zambia

SOUTHERN AFRICA REGIONAL AWARDS Best Retail Bank Southern Africa

• Barclays Africa Group • Standard Bank • Nedbank • First National Bank

Best Corporate Bank Southern Africa

• Capitec • Barclays CIB • Sasfin • Standard Bank CIB • Standard Chartered

Best Commercial Bank Southern Africa

• Barclays Africa Group • Standard Bank • BancABC • First National Bank

Best Investment Bank Southern Africa

• Barclays Absa CIB • Standard Bank CIB • Investec • RMB • Grindrod Bank • Standard Chartered

Most Socially Responsible Bank Southern Africa

• Standard Chartered Bank • Banco de Poupanca e Credito

• National Bank of Malawi • Bank Windhoek Best Foreign International Bank Southern Africa

• China Construction Bank • Standard Chartered • JP Morgan • Al Baraka

Best Customer Service Southern Africa

• Ecobank Zimbabwe • Millennium BIM • Banco de Poupanca e Credito • Investec • Bank of Baroda

Most Innovative Bank Southern Africa

• Moza Banco • Millenium BIM • Bank of Baroda • Access Bank Zambia

Best Mobile Banking Southern Africa

• Absa – Payment Peddle • Standard Bank – SnapScan • First National Bank – CellPay Point • Nedbank – Pocket POS • Capitec – Global One Best Regional Bank Southern Africa

• Standard Bank • Barclays Africa Group • Nedbank • First National Bank • BancABC

Best Islamic Bank Offering Southern Africa

• Absa • First National Bank • Al Baraka • HBZ Bank Ltd

Best Core Banking System Southern Africa

• Oracle • Temenos • Infosys Finacle • SunGard

Most Innovative Tech Vendor Southern Africa

• Entersekt • Digiata • CR2 • Wizzit • SAS Institute Best Payment Management Solution Southern Africa

• BPC Banking Technology • CR2 • BankServ • EMP

Best Mobile Security Technology Southern Africa

• Entersekt • Kaspersky • Symnatec • Gemalto — Ezio

Those institutions short-listed are not necessarily the largest. The Awards are designed to reward innovation and the ability to gain market share, not simple size. As always the winners will be selected by the registered readers of CPI Financial products and services—in other words, your peers in the financial services industry.

POLLS OPEN SOON Voting for the Banker Africa East Africa Banking Awards commenced on our website www.cpifinancial.net on 1 March 2016 and will run to 21 March 2016. Each shortlisted entry will be automatically linked to the institution’s own homepage online. In addition you may wish to read supporting material for the specific Award where provided by the shortlisted institutions before casting your votes. Once voting closes, the results will be tallied and revealed in the subsequent edition of Banker Africa.

REWARDING EXCELLENCE The core philosophy of CPI Financial, the publisher of Banker Africa, is transparency, ensuring accurate reporting of economics and financial matters, the factors determining the future of the banking and finance community and the business deals driving the industry forward. Our Awards programmes are designed to reward and promote excellence and competition in the drive to set new standards in the industry in quality of service, best practice and financial performance. The financial institutions that win one or more of the Banker Africa Awards in 2016 and in future years will be those offering best-in-class services that meet the needs and exceed the expectations of their customers. They will, truly, be winners. To learn more about the Banker Africa Awards programme, please contact: events@cpifinancial.net. CPI FINANCIAL AWARDS PROGRAMMES CPI Financial has more than a decade of experience in running Awards programmes for the financial services industry. The company has a track record with three annual events over several years: Ü Banker Middle East Industry Awards The annual Banker Middle East Industry Awards brings together some 400 representatives from banks and financial institutions across the MENA region. Ü Banker Middle East Product Awards Institutions are invited to nominate their own products and to provide supporting submissions. The winners of the Product Awards are chosen by a peer voting process. Ü Islamic Business & Finance Awards Islamic finance is a fast-growing, global industry and these Awards reflect this with both entries and winners from around the globe chosen once again by the votes of their peers.

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OPINION

Why the South African rand is falling The rand lost 26 per cent of its value in the second half of 2015 (CREDIT: KEVIN SHINE/SHUTTERSTOCK).

China, politics, currency trade—the rand’s current weakness can be attributed to a myriad of problems and has numerous implications, writes Fatima Bhoola, Lecturer in Economics at University of the Witwatersrand

iven that South Africa operates within a flexible exchange rate regime, the value of the rand, like any commodity, is determined by the market forces of supply and demand. The demand for a currency relative to the supply will determine its value in relation to another currency. Theoretically, the demand for a floating currency—and hence its value—changes continually based on a multitude of factors. In the case of the rand, its current weakness can be attributed to a myriad of structural problems facing the local economy. The main determinants of a currency’s value include demand

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for a country’s goods and services. This is closely linked to the growth and national income of its main trading partners. Equally important is the domestic interest rate. If it is high it is likely to attract foreign capital, causing the exchange rate to strengthen. But high inflation can wipe out the benefit of high interest rates to foreign investors. Additional factors serve to drive the currency down. These include a current account deficit. The current account deficit gets bigger when a country spends more on foreign trade than it is earning and has to borrow capital from foreign sources to make up the difference.

This implies that a country requires more foreign currency than it is getting through sales of exports, and it supplies more of its own currency than foreigners demand for its products. This excess demand for foreign currency leads to depreciation in the value of a currency. Factors such as political instability and poor economic performance can reduce investor confidence. This inevitably forces foreign investors to seek out stable countries with strong economic performance. Thus, a country that is perceived to have positive attributes will attract investment away from countries perceived to have more political and economic risk.

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There is a further complication to currency movements. The buying and selling of currencies is no longer driven only by the need to facilitate trade but also by the demand for currencies as financial assets. This means that currencies are bought and sold like any other asset. Decisions by traders—to buy or sell a currency—can have a marked effect.

THE IMPACT OF THE TURMOIL IN CHINA South Africa’s currency lost 26 per cent of its value in the six months after turmoil gripped Chinese markets in June 2015. This was when the People’s Bank of China surprised markets by executing a two per cent devaluation of the yuan and changing the way it traded its currency. The aim was to weaken the yuan to boost its export competitiveness. This, coupled with slower economic growth, has aggravated the situation for South Africa as well as other African countries that rely on oil and mineral exports to China. Emerging markets most exposed to lower growth prospects and subdued commodity prices have seen the sharpest falls. The rand is expected to remain under pressure with many analysts predicting that it will fall further in 2016. It is not alone. Many other emerging market currencies have been dealt the same fate. But the rand is substantially weaker than it might have been. The sudden reshuffling of the finance ministry was seen as weakening one of the country’s key macroeconomic institutions and continues to undermine market confidence.

IMPLICATIONS OF THE WEAK RAND The weak rand has a number of implications for the country’s growth prospect. Firstly, the weakening

currency carries the risk of pushing up inflation because imported goods are more expensive. This means that the South African Reserve Bank faces a difficult decision. It can keep interest rates low but then faces even higher inflation. This will only devalue the rand further. If the central bank takes more aggressive action by raising interest rates, it risks stifling growth in an economy that is only growing at 1.5 per cent. The rand’s weakening could not have come at a worse time for South Africa. The country is suffering from the worst drought since 1992 which has increased food costs and pushed the farming industry into recession. The price of white corn, a staple food in southern Africa, has more than doubled on the South African Futures Exchange in the past year. With large parts of the economy already in recession, coupled with worsening debt levels and the threat of credit-rating downgrades, it looks like the economy will contract. This implies that Finance Minister Pravin Gordhan has limited room to boost spending. The weak rand will also see the cost of imported goods for consumers rise. In addition, while the rest of the world benefits from record low oil prices, the country’s weaker currency means it will not able to take full advantage of this and may face higher fuel prices in the near future. On the flip side, the weaker rand does have some benefits. It is helping mines stay afloat. And gold mines could make profits again as the gold price has held up more than the prices of other minerals. There may also be a boost in tourism. The weaker rand may also have short-term benefits for Sub Saharan countries importing substantial volumes from South Africa.

Finally there may be a boost for local exporters. But this could be stifled by the rise in the price of imported raw materials which will contribute to higher costs of production for manufacturers.

IS THE RAND OVER-TRADED? In 2013 the South African rand was ranked as the 18th most-traded currency in the world. Surprisingly, while South Africa accounts for only 0.3 per cent of the world’s daily foreign exchange market turnover, the rand accounts for 1.1 per cent of the world's daily currency trading. This difference is largely due to the daily trade taking place outside South Africa by non-residents. This is partly a result of virtually no exchange control restrictions for foreigners trading the rand but many in place for South Africans who wish to trade in foreign currency. This has been highlighted as a further problem faced by the central bank in trying to influence the value of the rand. This article was originally published on The Conversation.

Fatima Bhoola lectures Economics at the University of the Witwatersrand where she obtained her MCom (Economics) degree in 2010. Her areas of interest include monetary policy, exchange rate volatility and economic growth. Published work includes studies on the determinants of output growth volatility in South Africa. She has also contributed book chapters pertaining to South Africa’s financial and labour markets. She is a passionate educator with a keen interest in learning and teaching.

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THE MARKETS

Opportunities are opening up for keen investors in other sectors (PHOTO CREDIT: PAUL COWAN/ SHUTTERSTOCK).

Outside of oil The largest economy in Africa has a lot of non-oil potential, but short-term challenges are throwing investors off

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ot many people expected oil prices to fall this low. While oil producers in the Gulf have only recently begun to feel the heat, major African oil exporters—with smaller reserves, weaker exchanges rates and larger deficits than their Gulf peers—have seen deterioration on a macro level for some time now. The pressure has led Nigeria, the continent’s largest oil producer, to appeal to key multilateral institutions; its January 2016 request for a combined $3.5 billion loan from the World Bank and the African Development Bank ($2.5 billion and $1 billion, respectively) is still under review by both institutions. These loans would only go some of the way in covering the $11 billion deficit projected in President Muhammadu Buhari’s December 2015 budget announcement. In the meantime, International Monetary Fund (IMF) Managing Director Christine Lagarde visited the country earlier this year during an IMF consultation mission started in December 2015. Though Lagarde said that the economy was “no longer dominated by agriculture and oil”, her recommendations included a strong focus on infrastructure and broadening the revenue base. She suggested reexamining fuel subsidies, monetary policy and the exchange rate policy in particular. The need for currency adjustments was echoed by Dr. Gene Leon, IMF Senior Resident Representative in Nigeria, weeks later at the conclusion of the Article IV consultation. “With oil prices expected to remain low for a long time, continuing risk aversion by international investors, and downside risks in the global economy, the outlook remains challenging,” Dr. Leon said.

Leon projected growth to improve slightly to 3.2 per cent in 2016 and a stronger 4.9 per cent in 2017, but that it would depend on appropriate policy adjustments, including fiscal discipline, structural reforms, and improved efficiency in the banking sector. “Establishing medium-term fiscal policy goals that support fiscal sustainability is a priority. In particular, measures should be implemented to boost the ratio of non-oil revenue to GDP,

investors realise that,” he said, noting that Verod Capital recently closed its second fund at $115 million. As Verod Capital focuses on mid-sized non-oil businesses such as consumer goods and manufacturing, the down market has a positive side. “There’s a saying, ‘when people are greedy, be fearful, when people are fearful, be greedy.’ For us, we just a closed our fund in January and we’re pretty excited about the times now, because we believe that the valuation is coming down in potential areas [and] owners of businesses are far more amendable to having a conversation about how you can invest,” he said. Still, many potential investors are casting their eyes at less risky markets. In a recent report, VTB Capital noted that while Nigeria is the strongest cont. overleaf

including from improvements in revenue administration and broadening of the tax base; rationalise spending; adopt safety nets for the most vulnerable; and foster enhanced accountability and an orderly adjustment of sub-national budgets,” he said.

INVESTING IN LOW TIMES The atmosphere has left some international investors wary about engaging with the market, but Danladi Verheijen, Managing Director at Nigeria private equity firm Verod Capital, believes this is only short-term. “[Those that would normally invest in funds] are a little bit hesitant to commit money to private equity at this point in time. But you know, private equity is a long-term game and astute

FAST FACTS Ü Ü Ü Ü

xports dropped about 40 per E cent, pushing the current account deficit to 2.4 per cent of GDP Reserves fell to $28.3 billion at end-2015 Growth is estimated to have slowed to 2.8 per cent in 2015 from 6.3 percent in 2014 Inflation increased to 9.6 per cent in December 2015, up from 7.9 per cent in December 2014 and above the CBN’s medium term target range of six to nine per cent

Source: Dr. Gene Leon, International Monetary Fund Article IV Consultation

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THE MARKETS

cont. from page 19

credit ‘on paper’ of the major African oil exporters, the market as a whole may be more fragile than those of its peers. “Policy choices since the fall in oil prices have been poor, while the structural/social challenges are worse than at peers,” the VTB Capital report stated, adding that a political transition in the midst of the oil price collapse has clouded the response of Nigerian policy makers. Echoing similar commentary by the IMF, VTB Capital highlighted currency policies—particularly restriction of the US dollar and inflexible exchange rates—the central bank has pegged it at around NGN 197/USD since March 2015, when oil prices were about double current levels. For Verheijen, the election of Muhammadu Buhari has only strengthened Nigeria’s prospects. “We’ve got a Government in place now that is probably the best Government we’ve had ever, in my view, with very principled and disciplined leaders who really mean well for the country. They’re doing a number of things, whether it’s covering a lot of leakages, putting an end to corruption, which has been a huge drag on the Nigerian economy, to trying to diversify our economy away from simply commodities—really trying to encourage the formation of other industries,” he said. These policy changes are key, but international observers agree that intuitive monetary policy and a stringent budget strategy will be imperative in the year ahead. Fitch has estimated that the Government will borrow $4.6 billion externally to partially cover the deficit, but that foreign direct investment (FDI) inflows will alleviate some of the pressure. VTB Capital expressed concern that Fitch’s estimate of more than 50 per cent FDI increase may not come to fruition this year, considering the continued oil price drag and policy concerns. If FDI comes up short, foreign exchange will remain under pressure and the

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Government may be forced to even more external financing. “Eliminating existing macroeconomic imbalances and achieving sustained private sector-led growth requires a renewed focus on ensuring the competitiveness of the economy,” The IMF’s Leon said. “As part of a credible package of policies, the exchange rate should be allowed to reflect market forces

more and restrictions on access to foreign exchange removed, while improving the functioning of the interbank foreign exchange market. It will be important for the regulatory and supervisory frameworks to ensure a strong and resilient financial sector that can support private sector investment across production segments, including SMEs, at reasonable financing costs.”

Snapshot: private equity in Nigeria Verod Capital just closed its second fund at $115 million, exceeding its original target of $100 million, to invest in manufacturing, consumer goods and services, business services, agriculture, education and financial services in Nigeria. Verod’s last fund, raised and deployed in the down market of 2008-2009, achieved 60 per cent returns for investors in what Danladi Verheijen, Managing Director at Verod Capital, says was perfect timing and a focused strategy.

Danladi Verheijen

What is your investing strategy for this fund? We don’t do oil and gas anymore, we don’t want a big commodity risk—we just find it impossible to value…it’s much easier to show value in traditional business, like a product that people buy on a day-to-day basis. Another thing about us is that we’re middle-market. There’s a lot of other private equity funds that are hovering around, investing in Nigeria and investing in West Africa, but they want to write much larger cheques and there’s just not that many companies of that size. Therefore what we see is that there’s a lot more competition for a few big businesses that will be able to swallow capital of that amount…there’s far less competition in our space. We hope to get into these small- and medium-sized businesses, grow them, and eventually sell them to larger private equity players that have a lot more capital they need to put to work. What are your expectations for this fund’s ROI? It’s a 10-year fund, five years to deploy the capital and five years to have sold all the companies. We’re not in a hurry at all [and] our targeted return is 30 per cent return. It’s far less than what we delivered on our first portfolio, but you don’t sound credible if you go in promising a 60 per cent return, even if that’s what you’ve done before. A lot had to do with timing on our first portfolio, so we’re trying to be conservative, but obviously hopefully we will exceed the numbers, but if we don’t exceed, our investors will still be happy.

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COUNTRY FOCUS MAURITIUS

The best of both? MauBank CEO Sridhar Nagarajan sheds light on the challenges that led to the bank’s birth and the opportunities in its future

opportunities. The merger addressed three issues in a single move i.e., MPCB, NCB and consolidation in the Mauritian banking sector. MauBank is now the third largest domestic bank in Mauritius in terms of retail presence and customer size, which allow it to compete on a level playing field with the larger banks, compared to the erstwhile MPCB or NCB on a standalone basis. MauBank’s strategy will be influenced by the synergies that these two organisations bring, the opportunities that are present in the domestic banking sector and the priorities set by the shareholder, particularly on organisational revamp and SME support.

What are the main challenges in merging MPCB and NCB, and what do you think were the more positive elements that each brought to the new institution?

Sridhar Nagarajan

he circumstances that led to MauBank’s creation were not just significant for the two banks it rose from, but for the Mauritian banking sector as a whole. It started in early 2015 with a liquidity crisis at Bramer Banking Corporation that exposed a Ponzi scheme of roughly $693 million. In April 2005, the Bank of Mauritius revoked Bramer’s license and transferred the assets and some liabilities of the defunct bank to the newly created National Commercial Bank (NCB). Following a merger with the state-owned Mauritius Post and Cooperative Bank (MPCB) later that year, MauBank was finally born.

The newest bank on the scene officially received its licence on 4 January 2016, and CEO Sridhar Nagarajan took some time to tell Banker Africa about the process the bank has gone through and its plans ahead.

MauBank was formed through a merger between Mauritius Post and Cooperative Bank (MPCB) and National Commercial Bank (NCB) how did—and how will—challenges within these institutions influence MauBank’s own strategy? MauBank is a combination of surmountable challenges and immense

The main challenge was the time set for merger, 90 days, as both banks had structural and governance issues that could not have been sustained through a long merger process. By launching MauBank on 4 January 2016 with minimal support from external agencies, the staff have proved their calibre and potential. It is worth noting that both banks had complementary client profiles on the retail and corporate portfolios. For example, NCB was more focused on the urban retail segment and large corporate clientele while MPCB, owing to its postal savings and cooperative roots, had a deep penetration into the rural-cum-mass segment and had a predominantly SME/middle market corporate clientele. Thus the merger was a natural fit and unlocked value immediately. I am personally impressed with the quality human resources within both organisations. The seamless merged operations for

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13/03/2016 12:14

nearly two months now are ample proof of that.

What are MauBank’s main goals and growth objectives for its first few years? MauBank’s key objectives include putting the customer first and at the heart of everything that we do, with a focus on adopting technology which will sustain this promise. We are also focused on re-inventing social banking into a commercial and economically viable pillar of the bank; and building a bestin-class corporate governance structure across the organisation. All this will lead to delivering shareholder value.

Are there plans in the pipeline to privatise, or partially privatise, the bank? Our current mandate is to establish MauBank as a strong domestic bank, with a sustainable business model and profitability while supporting the social banking requirements of the nation. However, the Government, as the shareholder, may consider at the right time taking on board a strategic partner, preferably a global or regional banking group, which can augment MauBank’s relationships, products and markets.

Besides the creation of MauBank, how, in your opinion, did the Bramer Bank struggle last year influence the Mauritian banking sector? The Mauritian banking sector, I’m sure, has taken note of the structural changes that have taken place over the last one year. What is important is that, as an industry, we need to ensure that we maintain high standards with regard to governance, and be cognisant of the important roles that banking plays in the economy. However, the Mauritian banking sector is well-regulated and the formation of MauBank is a positive influence as it heralds a much needed

consolidation among smaller banks to offer competitive banking services to customers.

One of the stated goals of MauBank is to serve SMEs— what potential do you see in the Mauritian SME sector? One of the primary objectives of MauBank is to nurture SMEs in partnership with the Government’s onestop shop SME support initiative and other stakeholders, towards fulfilling the Government’s vision of making of Mauritius a nation of entrepreneurs.

Both banks had complementary client profiles on the retail and corporate portfolios. - Sridhar Nagarajan

SMEs in Mauritius cater to over 50 per cent of the employment and contribute to about 40 per cent of the GDP. The potential in this sector lies in the impact it will have on the overall productivity in the country. The productivity in a country is closely linked to the level of innovation and flexibility of SMEs to adapt to the ever changing global trends. To this effect, MauBank believes in the creation of an ecosystem that will sustain SMEs through their life cycle. MauBank has already initiated a partnership programme, the SME Financing Scheme, with registered public accountants or specialised firms to provide accountancy and financial consultancy services to the bank’s customers. Thus, we are not viewing SME support in terms of just financing, but aiding the SMEs in their journey from micro to small to medium, and to then, large enterprises. This would be

MauBank’s unique approach to SMEs. Our shareholder is fully supportive of our strategy and has even underwritten a large portion of the inherent risks from a social perspective.

What other banking sectors will be part of your key focus, and what are your growth objectives in these lines of business? MauBank is present in four segments— retail, corporate, SME and global business. We will continue to consolidate our position within the retail and SME space while expanding our large corporate and global business market share.

In a banking sector as competitive as Mauritius’, how will MauBank differentiate itself? In today’s evolving banking sector, globally and in Mauritius, technologyled innovation will play a disruptive part in changing the competitive landscape. MauBank has the ability to adopt this paradigm as a new player and would leverage innovative technology to differentiate our products and services.

What is your outlook for the Mauritian banking sector? What are the key challenges and opportunities? Mauritius is a highly banked country. A highly banked population means that for banks to increase their market share domestically they will need to offer more innovative products and services that will have the overall effect of improving customer experience. One of the challenges that banks face is the evolution of technology and the way today’s customer interacts with the financial system. This is more evident in other parts of the world but, nevertheless, I do see this as a major trend and an opportunity for banks in Mauritius to make a difference vis-à-vis their competitors.

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COUNTRY FOCUS MAURITIUS

Banks in transition The Mauritian banking sector faced transparency issues, bank failures and changing regulations this past year—but strong growth from the rising financial hub continues

Data shows solid growth through 2013-2014 (PHOTO CREDIT: ESFERA/SHUTTERSTOCK)

n many ways, 2015 was a formative year for the Mauritian banking sector. A series of corruption scandals exposed weaknesses in one of Africa’s most developed financial markets, yet helped trigger an overall regulatory push by the Government. First there was its efficient handling of the Bramer Bank Ponzi scheme scandal—revoking the bank’s licence, moving the good assets into a new bank and merging that bank into a newer one (MauBank, pg. 22), in a matter of months. Now, authorities are now hammering out hotly contested taxation and governance regulations to clean up the country’s tax haven

reputation, which could have strong implications for foreign investment. But before all that happened, there were a few years of uninhibited and optimistic growth. Not every bank has released their 2015 Annual Reports yet, but our team compiled the results of 2014 and 2013 to show an interesting story of newer players making aggressive gains against the traditional market leaders. As our tables show, several banks had strong net profit gains from 2013 to 2014. While Barclays Bank Mauritius and Investec Bank Mauritius dominated the Figure 4 table through sheer size, it was actually ABC Banking

Corporation that had the greatest percentage increase, with net profit growth of $290,000 giving it a 148.41 per cent boost (Barclays and Investec growing 71 per cent and 39 per cent, respectively). Similarly, Bank One’s net profit increased by nearly $2 million, a 112.1 per cent rise. But the bank with far and away the largest profit increase by percentage was BanyanTree, with a 1,520 per cent net change. There is a reason for this astronomical number and a reason we did not include it in Figure 4—BanyanTree began operations in February 2013 and ended the year at a loss, perhaps expected for a brand

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new institution. In the time since it has grown aggressively, now operating two private equity funds with assets under management of $250 million. In 2014, it netted a solid $3.64 million profit, along with assets and liabilities increases both above $80 million. The bank’s growth story has been strong, but unique in its newness. As for AfrAsia, the numbers used in our analysis were obviously reported before a series of unfortunate events in 2015, which saw both the founding CEO James Benoit resign and the AfrAsia subsidiary in Zimbabwe shut down. Thus while the phenomenal 2013 to 14 growth curbed in 2015, AfrAsia still expanded solidly, if a bit carefully. In a statement preceding the 2015 Annual Report, AfrAsia Chairman Lim Sit Chen Lam Pak Ng addressed the rough year head-on, stating, “I would like to emphasise that the Bank has been profitable and has a strong capital base. Offsetting strong net interest income growth and treasury dealing profits was the residual impact of closing the Zimbabwe banking operations in February 2015. Due largely to the Zimbabwe withdrawal, the bank saw a sharp drop in net profit after tax from MUR 223 million in 2014 ($6.2 million) to MUR 175 million ($4.9 million) in 2015. But the National Bank of Canada also increased its stake in AfrAsia last year, boosting equity capital by nearly MUR 1 billion ($27.8 million) and putting AfrAsia at a common equity Tier 1 capital ratio of 7.5 per cent and total adequacy ratio of 13.7 per cent. Acting CEO Thierry Vallet—who oversaw the Annual Report but has since been replaced by permanent CEO Sanjiv Bhasin—also commented on the difficulties the Zimbabwe withdrawal presented for the Bank. “Our challenges in our Zimbabwe operations continued and we took

TOP 5 BANKS BY ASSETS CHANGE 6,938,751 474,337 3,230,923 836,953

Standard Bank Mauritius

3,547,689 176,739

1,667,476 295,878

1,569,163 529,154

AfrAsia Bank

Mauritius Commercial Bank ASSETS SIZE

Investec Bank Mauritius

Standard Chartered Bank Mauritius

ASSETS $ CHANGE

TOP 5 BANKS BY LIABILITY $ CHANGE 203,245

3,196,363

Standard Chartered Bank Mauritius Investec Bank Mauritius

1,317,070

AfrAsia Bank

1,458,646

249,578 491,040 514,219

6,230,915

Mauritius Commercial Bank 3,153,736

Standard Bank Mauritius

Liability Size

821,493

Liability $ Change

TOP 5 BANKS BY LIABILITY $ CHANGE 334,671 211,906 99,620 159,601

Standard Chartered Bank Mauritius

41,187 47,747

Barclays Bank Mauritius

18,776

16,665

Mauritius Commercial Bank

Revenue size

AfrAsia Bank

56,423 12,529 Investec Bank Mauritius

Revenue $ change

Souce: CPI Financial

cont. overleaf

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25 14/03/2016 10:34

COUNTRY FOCUS MAURITIUS

cont. from page 25

the decision in February to surrender our banking licence there and wind up the operations. This was expensive financially and painful for the impact on staff there,” he said. “This year is a year of transition, not only for AfrAsia Bank Limited, but for Mauritius and beyond. The global economy remained volatile and perplexing during the year. Here in Mauritius, we also had political changes and some corporate failures. These have had their knock-on effects on the economy and for us at AfrAsia Bank Limited. Still, it was the year in which we gained great insight into our business model, continued to innovate and made some inspiring and bold moves,” Vallet added. If 2015 was the year of transition for Mauritian banks, 2016 may be the year of adjustment. The hotly contested Good Governance and Integrity Reporting Act has been enacted to target ‘unexplained wealth’ by Mauritian citizens, promising to tighten regulations further. A number of double taxation agreements are also on the table for renegotiation; the India agreement is of particular concern for foreign investors. Banks’ efforts to expand overseas could also expose them to risk according to Fitch Ratings, which projected weaker asset quality and nonperforming loan rates of six to seven per cent of gross loans in 2016. As Mauritius rises as a hub for emerging market investment, volatility in the global markets could naturally hit the island as well. On a recent visit, the International Monetary Fund’s Mauro Mecagni recognised the challenges Mauritius faced in 2015, but commended the Bank of Mauritius’ efforts in “mopping up” excess liquidity and strengthening supervision. “Going forward, further reforms need to be implemented to take the next leap in development,” Mecagni said.

TOP 5 BANKS BY NET PROFIT CHANGE 45,901 29,786

485 290

10,395

12,387

3,751 1,983

ABC Banking Corporation Mauritius

Bank One

12,907

3,705 Barclays Bank Mauritius

AfrAsia Bank

Investec Bank Mauritius

NP $ change

TOP 5 BANKS BY ASSETS SIZE Mauritius Commercial Bank

15% 32%

HSBC Bank Mauritius 16%

State Bank of Mauritius Standard Chartered Bank Mauritius 17%

Barclays Bank Mauritius 20%

TOP 5 BANKS BY NET PROFIT % CHARGE

Investec Bank Mauritius AfrAsia Bank Barclays Bank Mauritius Bank One ABC Banking Corporation Mauritius

39% 55% 71% 112% 148%

Souce: CPI Financial

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08/03/2016 12:31

BA bleed guide.indd 1

08/03/2016 16:38

COUNTRY FOCUS MAURITIUS

Doubling down on ambitions Several factors made 2015 a tough year for SBM but big plans for international expansion and solid growth are underway, says Chairman Kee Chong LI KWONG WING

ow did recent incidents of fraud i n t h e i n d u s t r y, including the Bramer Bank scandal, impact SBM? The passage of the financial storm, known as the British American Insurance (BAI) scandal, did unfortunately contribute to the suboptimal performance of SBM in the year 2015. We have been hit by substantial impairment, a large chunk of which is linked to the defunct BAI Group. The Groupâ&#x20AC;&#x2122;s net impaired advances to net advances ratio, deteriorated from 0.96 per cent at 31 December 2014 to 1.95 per cent at 30 September 2015, but it is still below the industry average. However, we are confident that we are now adequately provisioned in respect to this Group.

What do you think are the most important priorities for the banking sector to recover, both from a regulatory perspective and from banks themselves? Financial services revolve around the principle of trust. If trust is broken, then the whole sector will find itself in shambles. Regulators around the world

are struggling to find the right balance between regulation and financial inclusion combined with innovation. On the one hand, regulation is an essential ingredient to preserving the integrity of the sector in the eyes of the public. On the other, there is the danger of stifling innovation and growth through overregulation. As it opens up to international business, Mauritius could find it increasingly challenging to achieve this balance, especially when financial literacy is low and public gullibility overrides social intelligence and caution. So finding the right balance is important.

What kind of growth do you expect for SBM this year and in the medium-term? The huge impairment following the BAI scandal hit the performance of SBM last

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year. For this year, we are likely to see positive developments in respect of the underlying fundamentals. Alongside the financials, it is worthwhile noting that despite the increase in impairment in 2015, asset quality metrics have been contained at acceptable levels, and are in fact stronger than peers. On the medium-term, SBM has significant growth potential and we are currently working towards unlocking it, building on the Group’s sound fundamentals and strong capital resources. We recently commissioned McKinsey & Company, a leading global strategy consulting firm, to review our strategy. SBM can reach further heights by better understanding the changing needs of its clients and hence, developing tailor-made solutions for them and delivering these services in a proactive manner mainly in its established businesses such as Retail Banking, SMEs and Corporate Banking segment. On the diversification front, the Group plans to significantly grow its share of global business (Segment B) and non-banking income through new products and services, in line with customer needs. Another key lever in the medium term is regionalisation, whereby the Group will expand its services, either through cross-border lending or overseas presence and operations in our region.

How might MauBank’s creation, making it the third-largest bank, shape the field and SBM’s own strategy? SBM has a solid capital base, large liquidity and robust processes. The arrival of MauBank, as the Government-controlled bank, on the local scenery is most welcome. SBM does not fear competition, instead competition will make the Group stronger and will benefit our

customers. SBM’s strategy is already set and we have already identified five key pillars namely consolidation, diversification, regionalisation, modernisation and capacity building on which we will be focusing to achieve our set objectives. All these initiatives will involve developing new structured products, but also designing more efficient processes and deploying through alternative channels. Our focus on modernisation, whereby updated technology and new skills, key elements of our capacity building initiatives, will interact to make life easier and smarter to benefit our customers. For the coming years, our aim is to at least double the size of our assets and profit.

target markets—or by establishing our own banking operations. In this context, we are also exploring the possibility of acquiring a stake in a bank in East Africa, particularly Kenya, with the engagement of local partners. We will also be active on the non-banking front which will act as a springboard for clients to invest in Africa and other high growth regions. We are also looking to expand our business in the Indian Ocean Islands. Our return on capital in Madagascar has shown signs of improvement and the Group is pursuing its expansion in Madagascar testified by the opening of two additional branches last year. We have also applied for a banking licence in Seychelles, where, despite its small size, returns are quite attractive.

Financial services revolve around the principle of trust. If trust is broken, then the whole sector will find itself in shambles –

Kee Chong LI KWONG WING, Chairman of SBM

Are you looking to expand more on the international front? Indeed, a key pillar of our strategy is to grow our international business and we have embarked upon a series of initiatives to this effect. In the first instance, we have just signed partnership agreements with reputed financial institutions, including regional agencies like PTA Bank and Afrexim, to increase participation in cross-border deals, particularly in Africa while building capacity to eventually source our own deals in these markets. We will also expand our international footprint whether through representative offices—to help secure cross-border deals and cross-sell our products in

In India, the Group has been, for long, hampered by a small branch network. We have now received RBI approval to set up a fully owned subsidiary, which will allow us to expand our branch network and, thus enabling us to build a stronger customer base. We would start the implementation of the India Expansion Strategy, by beginning of 2017, once our new technological system is live there. For the longer-term, we have placed an option on Myanmar, following the removal of international sanctions and the onset of institutional reforms. We are also planning to set up Rep Offices in Dubai, Johannesburg and London.

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COUNTRY FOCUS MAURITIUS

Capitalising on smart growth The game for bank expansion has changed, but AfrAsia CEO Sanjiv Bhasin sees Mauritius as a pillar of the African growth story and AfrAsia as a key player

– Sanjiv Bhasin, CEO, AfrAsia

ou assumed your role in December 2015; what are your top priorities for AfrAsia right now?

AfrAsia is a well-recognised institution and seems to have earned a healthy respect from its customers. This is clearly demonstrated by the number of customers we bank and the size of our balance sheet given the fact that we have been in existence for under eight years. The first priority for us is to protect that status we now enjoy. Thereafter, we have to grow faster to generate a better quality of income from diverse sources. This is a priority but requires a considerable effort and planning and that’s another key area of focus. We need to ensure a robust infrastructure so that we are confident that our service standards meet or exceed customer expectations and that too on an ongoing basis. To say we are the best in service requires an ability to deliver a customer experience that becomes a talking point in the market. Customer expectations are evolving and technology is changing the landscape on how customers access products and services. We need to be innovative in our thinking to be ahead of the market and have a competitive edge knowing full well that it cannot be for long; we need to be on an innovation tread mill all the time. Now,

to have the organisation encourage that culture is not an easy task.

What role do you see Mauritius playing in the African banking space? Do you think the country’s position makes it harder or easier to be an ‘African’ bank? The financial services sector in Mauritius is a success story from all counts and to a very large extent it is recognised as one by the other countries in the region and world. The regulations and the regulators have done a commendable job to ensure that it is perceived as an honest, modern, and stable financial platform. This obviously is an advantage for banks to be registered in this jurisdiction as they benefit from its overall reputation. With that background, all will agree that being in this jurisdiction is an advantage for private, and corporate banking. Given the size of the economy and the total population size, retail banking is a challenge and will remain so. A technology breakthrough and adoption of digital platforms may change that too, so we have to wait and watch as we witness developments. New efforts to energise the stock exchange, fund management industry, commodity exchange, and the derivative trading platform will ensure that this jurisdiction continues to remain a

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10/03/2016 16:51

[Zimbabwe] taught us to be more vigilant, understand the risks better, have adequate management bandwidth and maybe understand the markets better before we take any further investment or business decisions. â&#x20AC;&#x201C;

preferred one for the future as well. The overall stability of the political system, availability of talent and the general living environment can ensure this country to be a preferred destination for doing business in the region.

How do you see the Government and regulators positioning Mauritius in the global economy? Mauritius emerges as one of the pillars behind the African banking sectorâ&#x20AC;&#x2122;s growth owing to the provision of a properly regulated business environment and the availability of expertise required to reposition Africa as a powerhouse on the global front. Aspiring to a second economic miracle, the present Government is putting in much efforts to reinforce the position and image of Mauritius as a major financial centre in this part of the world. In addition, with the emergence of the Good Governance and Integrity Bill, I believe the regulatory framework of the Mauritian business environment will be even more reliable and will encourage further foreign direct investment in the region. With one of the best business regulatory environments in the African region already but also in the world, I am of the opinion that Mauritius is on the way to be considered as the Switzerland of Africa

What do you think are the biggest challenges the Mauritian banking sector faces?

Sanjiv Bhasin, CEO, AfrAsia

There are clear trends around the globe that customer expectations from banks and technology will change the way in which banks exist today. Global boundaries are being dismantled. Customers will now have access to service providers to get the best product/price combination from anywhere, which was not the case until recently. Therefore, competition will not be defined by geographical presence any longer. Are the local banks gearing themselves for this change? We need to watch the trends. On the other side, regulators have to be ahead of the game to ensure that the industry remains well regulated, safe and protective towards customers. Cyber -security will become a key challenge which regulators have to prepare themselves for. Risks have to be redefined and managed. Speed of response has to be heightened. In short, challenges also will not be traditional in nature.

Have factors in the last year, such as pulling out of Zimbabwe, changed your African expansion strategy? Do you have plans for more subsidiaries in the next few years? Our focus for business remains Africa and Asia. The target is to capture the trade and investment flows to and from these two continents supplemented by direct flows to each of the regions from elsewhere. This will remain our focus and our efforts are geared towards

developing a sizeable pool of knowledge and understanding to ensure that we master the selected markets and can be seen as an institution which can add value to customers when they move to expand in Africa. Zimbabwe, at the time the decision was made, appeared to be an attractive development. Possibly the turn of economic events and absence of a keen and focused management oversight could be the cause of that effort not producing the desired result. This taught us to be more vigilant, understand the risks better, have adequate management bandwidth and maybe understand the markets better before we take any further investment or business decisions. It has been an expensive lesson but one that has left us with a truckload of information as to the manner we approach our African expansion. We will grow in Africa but in a cautious and conservative manner and after we are certain that we are aware of the risks and know how to manage them. The nature and size of expansion will be determined by the opportunity, investment and business appetite and more importantly our risk appetite and capital availability. The structure of the investment/business will also be influenced by the regulations in each jurisdiction. For the immediate, we wish to concentrate in our home market, the one we understand best and maybe help the local companies expand in the region.

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POLICY SPOTLIGHT

Djiboutiâ&#x20AC;&#x2122;s Red Sea ports make it ideal for linking African and Eastern trade. (CREDIT: DEREJE/SHUTTERSTOCK)

The road to international trade A series of partnerships with Chinese companies and plans for a new free zone are positioning Djibouti as a trade hub, says Ahmed Osman, Governor of the Central Bank of the Republic of Djibouti 32

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Like Singapore, we are a small country occupying a strategic position along key shipping routes. Ahmed Osman, Governor, Central Bank of Djibouti

hough it has long been a strategic port in the region, Djibouti is going a step further, steadily transforming itself into the critical hub for linking East Africa to the eastern hemisphere. Its aspirations got a boost with the recent cooperative agreement signed between Djibouti Ports and Free Zones Authority and Silk Road E-Merchants Information Technology Co. Ltd to create the Djibouti Silk Road Station. The Station, aligned with China’s larger One Belt and One Road (OBOR) initiative launched in 2013, will be designed to facilitate customs, payment settlement and a clearing centre for East Africans to bring in business. A joint venture company will also be set up in Djibouti to push forward business operations implementation and policy, the Djibouti Government said in a statement. Through OBOR, China plans to link over 60 countries across Asia, Europe, the Middle East and Africa, covering a total population of about 5.1 billion and total GDP of about $26 trillion. Djibouti’s Silk Road Station will make it an integral part of the growing trade route and a close trade ally to China. Ahmed Osman, Governor of the Central Bank of Djibouti, spoke to Banker Africa about the road ahead for Djibouti.

and anti-piracy. China shares this vision with its Silk Road initiative connecting Asia to Europe, encouraging trade, growth, development and investment along the way. Djibouti has embarked on several major infrastructure projects with China, including building a modern electric railway and a super highway connecting Ethiopia and Djibouti, two international airports and a multipurpose port. The most recent strategic agreements signed on the 18 January 2016 concern the creation of a vast new free zone, Khor Ambado, a trans-shipment hub and the creation of a clearing house. China is assisting Djibouti in its mission to become a logistics hub for Africa. Like Singapore, we are a small country occupying a strategic position along key shipping routes and we are transforming our country into an important maritime port, establishing the foundations for a burgeoning commercial hub for the region. cont. overleaf

How does Djibouti benefit from being a part of China’s Silk Road initiative? Djibouti is strategically located on two of the busiest shipping lanes in the world. It is a natural meeting point for East and West to cooperate closely on a wide range of issues, including business and trade, security, counter terrorism,

Ahmed Osman

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POLICY SPOTLIGHT

cont. from page 29

How could the renmibi clearing house/the payments platform help Djiboutian business and also the East African region?

The agreement made between the Central Bank of Djibouti and worldleading data company, IZP Technologies Co Ltd, is to establish a clearing house that will enable Djibouti to become a hub for international finance and business. The clearing house will facilitate business transactions in real time and will lower costs without involving foreign correspondent banks. This system will benefit exporters and importers, as will allow them to transfer money quickly, reliably and securely. It also eliminates the need for confirmed letters of credit and associated costs, as the Central Bank will guarantee payments, through pre-financing arrangements with commercial banks. In summary, all businesses operating in Djibouti, whether they are Djiboutian, Chinese or East African, will benefit from improved efficiency and a more cost effective way of making transactions.

From a regulatory perspective, how does the free zone differ from the rest of Djibouti, particularly for foreign businesses? Djibouti offers a strong regulatory framework, a stable currency and a commitment to improving transparency with an active anti-corruption programme in place. The creation of the existing free zone, the Djibouti free zone (DFZ) in 2004 marked a significant milestone. Serving as an international logistics hub to the Common Market for Eastern and Southern Africa (COMESA), the Middle East, Asia, Europe and North America, the DFZ is instrumental in facilitating global trade and supporting the growing economic emergence of not only Djibouti but also East Africa. Since its establishment, the DFZ has witnessed unprecedented levels of

demand and has been fully occupied since 2011. The new free zone, and Djibouti’s second, Khor Ambado, will meet current and future growth. This new free zone will offer the same benefits that the DFZ does, such as zero per cent corporate tax, a duty-free environment, 100 per cent foreign ownership, no restrictions on employment or foreign personnel, 100 per cent repatriation of capital and profits, direct local and regional market access and no currency restrictions, along with minimal redtape. Additionally, companies can also depend on the help of the Djibouti National Investment Promotion Agency, a one-stop shop that facilitates setting up business in the country.

How will allowing Chinese banks to operate in the country change the banking industry? What limits may be on the banks? Djibouti’s banking sector attracts investors from across the world. The financial sector grew rapidly between 2006 and 2016 with the arrival of a number of new banks. In a decade, broad money has increased by 167.3 per cent, deposits are up by 186.9 per cent and loans have increased by 498.6 per cent. This is due to the fact that there were only two banks back in 2006 and ten banks today. In addition, today Djibouti has 19 exchanges and transfer bureaus, three microfinance institutions and an Economic Development Fund against just three exchange offices in 2006. Indeed the banking sector accounted for 13 per cent of Djibouti’s GDP in 2015. There are currently nine foreign banks operating in Djibouti and the arrival of Chinese banks is a further opportunity to strengthen our financial sector. In turn, by operating out of Djibouti, Chinese banks will have access to significant investment opportunities in Djibouti and across the whole of East Africa.

Plans in the pipeline China isn’t the only world superpower planning largescale projects with Djibouti. On a recent visit, US Assistant Secretary of State Antony Blinken announced an oil pipeline project—running from Ethiopia into Djibouti and including a new oil storage facility—that will begin construction in June with funding from American company Black Rhino. At the same time, a $1 million agreement was signed between Djiboutian authorities and the US Agency for International Development to support community programmes for women, young people and vulnerable groups. Djibouti’s first international school of English with an American curriculum was also launched during the visit, which coincided with the annual US-Djibouti Binational Forum. “Djibouti is one of the few African countries maintaining a privileged partnership with the United States concerning energy and economic developments,” Blinken said. According to the press office of the President of Djibouti, the United States contributes more than $100 million a year to Djibouti’s economy and is one of the country’s largest employers. More than 1,700 Djiboutians work at Camp Lemonnier, the only permanent US military base in Africa.

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In addition to the clearing houses, we have also invested in modernising our financial infrastructure, including establishing a national payment scheme and a credit information system. We have traditionally operated a cash transaction system, but this is changing with the introduction of an advanced banking card system. We have also created a guarantee fund for SMEs and leasing. Collectively all these measures will help strengthen financial inclusion. With regards to limits, Chinese banks, like others, will have to comply with Djiboutian banking regulations. We have robust banking laws dealing with how credit houses officially register. We require periodic statements of their performance and their annual internal reports. We also conduct inspection and supervision missions in credit establishments and we have signed cooperation agreements with foreign central banks to ensure better monitoring of foreign bank branches in Djibouti. In addition, the Central Bank continues to strengthen its supervision of commercial banks in Djibouti.

What kind of institutions are you looking to attract to the free zone? The Khor Ambado free zone will establish Djibouti as the key transportation and logistics hub in East Africa. It will act as the engine and the economic driver for the future of Djibouti. It will be the largest industrial free zone in Djibouti at 3,500 hectares, and allow the movement of goods between the docks, hangars and factories. The large area will be dedicated to industry and commerce, including manufacturing, air and sea transport, commerce, regional distribution, small trade of commodities, conference rooms, international exhibition space, international cruise terminals, residential and recreational facilities, hotels and tourist centres.

186.9% Deposit increase in Djiboutian banks since 2006

13%

Banks’ share of Djiboutian GDP in 2015

340,000 New jobs projected in the Khor Ambado free zone

In the first ten years, we aim to attract companies in the areas of fertiliser distribution and blending, garments manufacturing, food processing, pharmaceuticals, photovoltaic solar system assembly, steel and metal works, building materials and product manufacturing, packaging manufacturing, oil and gas services. In the medium to long term we plan to develop value added automotive distribution activity such as car retrofitting, final fitting and pre-delivery inspection based on the growing vehicle demand in the Horn of Africa region. The purpose of this zone is to attract and promote investment for export led industries thereby facilitating Djibouti’s exports, enhancing its international competitiveness, creating jobs, in total 340,000 jobs over 10 years, improving the skills set in the labour market and progressing Djibouti’s technological know-how.

The maritime centre of East Africa? The Djibouti Free Trade Zone (DFTZ), created in partnership with China Merchant Holding International, will become a mixed use land and port zone including an export processing area, and industrial part zone, a duty free area and a ‘cross national zone’ allowing potential linkages with neighbouring countries. The preferred clusters in the free zones’ first five to 10 years will be fertiliser distribution & blending, garments manufacturing, food processing facilities, pharmaceuticals, photovoltaic solar system assembly, steel & metal works, building materials & product manufacture, packaging manufacturing, oil & gas services. Medium to long term developments are expected to include the development of value added automotive distribution activity such as car retrofitting, final fitting and pre-delivery inspection based on the growing vehicle demand in Horn of Africa countries. While the first agreement was signed in March 2015, the 18 January Memorandum imitated phase one, including a five kilometre export-oriented industrial development zone. As a fast track measure, a 1.5 kilometre pioneer project will be developed by December 2016, which the Djibouti Ports & Free Zones Authority says will create up to 5,000 direct jobs and up to 15,000 jobs indirectly.

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TRAILBLAZERS

Sunrise’s popular Jungle Beat series features wild animals on fun adventures.

Bringing the jungle to the world With universal themes and lovable characters, South Africa’s Sunrise Productions animation studio finds mass appeal

t’s natural to think Nollywood when you hear the phrase ‘film production in Africa’. But the productions actually making it to the global stage often emerge from further South—and target a much younger audience. Several animation studios were founded in South Africa in the late 1990s, but it was Sunrise Productions that first made a splash with its 2003 production The Legend of Sky Kingdom, a stop-motion animated film completed in Zimbabwe. The 73-minute movie was Africa’s first animated feature film and launched Sunrise as a leader in the field when many African animation studios were still in their early days. Sky Kingdom told the story of three orphans on an adventure to reach the fabled Sky Kingdom after escaping enslavement. Part budget and part artistic choice, the filmmakers used

36 page 36-37 Trailblazers031.indd 36

puppets made of salvaged junk— ‘junkmation’, they dubbed it—to make the characters come alive. “Back then we had limited finances and minimal equipment. It was Africa’s first animated feature film and we’re very proud of that,” Phil Cunningham, Founder and Executive Produce at Sunrise Productions, recalled. Sky Kingdom made its mark, but thirteen years later it is Jungle Beat that has attracted international broadcasters to Sunrise. The studio, based in Cape Town, has just begun production on seasons four to seven of its flagship series of short digital 3D animated segments featuring a menagerie of wild animals. In a recent Jungle Beat episode, a warthog—not generally thought to be the most attractive beast— proudly goes to great lengths to keep his hair looking good, to disastrous

effect. Without a spoken word, the warthog’s five-minute story of vanity is universally understood—and funny. Whether it’s the warthog and his looks, a hapless monkey getting into trouble or a baby ostrich aspiring to fly, the approachable and universal nature of the short animations has been a huge part of their success. “Jungle Beat has a broad appeal,” Cunningham said. “Children love watching the show and everyone has a favourite character. But equally, families enjoy watching the show together. The episodes are engaging and entertaining and it’s an experience for the whole family.” Cunningham says that by mid-2017, Sunrise will have produced a further 52 episodes of seven minutes each. “At Sunrise we have a passion for quality storytelling, and a conviction that film is the world’s favourite media for stories,” he added.

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13/03/2016 14:48

But much of Sunrise’s more recent activity has been in the commercial division with numerous commercials for major brands, including sports clubs. The work has led to Sunrise’s sports characters animation, a partnership with major sports brands and clubs to create memorable storylines and lovable personalities for team mascots. So far, Sunrise has partnered with England Rugby’s Football Union, the South African Rugby Union, Sharks Rugby, Cricket South Africa and the Welsh Rugby Union. The characters span from Bokkie, a playful and friendly springbok representing the South African national rugby union team the Springboks; to Scorch, the Welsh Rugby Union’s fiery red and gold dragon. The most recent addition is ‘J’, a regal gold trimmed zebra for Italian football club Juventus. “We develop characters according to our clients’ requirements, their history and their culture. Sport is a passion. It’s a pursuit people identify with culturally and geographically. We spend quite a bit of time visiting our clients, talking and listening to them, learning about their national history as well as their club or regional history. At some point the character very often presents themselves to us,” Cunningham said.

new season in Norway. The series has On growing the sports characters been broadcast across more than 180 opportunities, Cunningham said, countries and 40 airlines, but Sunrise “It’s simply a matter of hard work does not plan to stop there. and extensive networking. Like any “We’re looking at several feature business, that hard work does pay off film projects, both animated and livein time and we find that the clients action. We’re passionate about the big we attract forge lasting business screen and our aim is create a Jungle relationships with us.” Beat feature film for theatrical release. In the meantime, Jungle Beat has The production of the feature film will steadily gained momentum across run parallel to the production of the Europe, Africa and the America. In ongoing television series,” Cunningham 2015, Cartoon Network picked up the said. With more projects in the pipeline new season for broadcast throughout and the growing popularity of Jungle Latin America and Brazil, while Turner Beat’s characters, we expect to see a lot acquired the series for broadcast in more out of Sunrise in the future. Central and Eastern Europe. The new season was also sold to YLE in Finland, SVT in Sweden and VRT in Belgium, as well as SRC, the public broadcaster in French-speaking Canada, and Jim Jam in multiple territories all over Europe. Gulli has acquired the three seasons of Jungle Beat for its audience in French-speaking Africa and NRK Scorch, representing the Welsh Rugby Union, is just one of several sports has picked up the characters developed by Sunrise.

www.bankerafrica.com

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37 13/03/2016 14:48

TECHNOLOGY (CREDIT: KAPRIK/SHUTTERSTOCK)

One factor to rule them all? Biometrics and strong authentication are increasingly vital to banking security, but ease of use is key, says Entersekt in upcoming webinar

veryone with a stake in digital banking security has been tracking the rapid developments in biometrics and debating the technology’s utility in the battle against cybercrime. There’s no doubt that it can and will play an important role in securing digital services, particularly when viewed from the perspective of user convenience. What is less clear to many is how biometrics should optimally be positioned within a layered security regime. Can fingerprints and voice recognition serve as the sole means of user identification and transaction authentication? Security experts say no, but why? On Tuesday, 15 March, authentication and mobile app security innovator, Entersekt, will host distinguished analyst and biometrics expert Alan Goode, for an in-depth examination of one of most exciting new tools for securing mobile banking.

38 page 38 Tech 031.indd 38

Alan Goode is the founder and managing director of Goode Intelligence, an independent research and consultancy company focused on information security, mobile security, authentication and identity verification, biometrics, enterprise mobility, and mobile commerce. He is a respected expert in information and mobile security and has written a number of publications on these subjects. Entersekt’s Chief Information Officer, Gerhard Oosthuizen, will join the webinar to share some of his own thoughts, explaining why biometrics can only ever serve as one part of wellcrafted mobile banking security strategy. This is a great opportunity for information security professionals, risk managers, and compliance officers in the financial services and payments industries to gain insight into the strengths and weaknesses of biometrics, where it works and where you want to augment it with other advanced security measures.

Agenda items include the following: Ü T he top trends in biometric authentication Ü An assessment of device-based versus server-based mobile biometric authentication Ü A survey of relevant industry standards, including those from the FIDO Alliance and the IEEE Ü A n industry expert’s view on the future development of mobile biometrics Ü An examination of the options banks have for boosting the security of mobile-based biometrics without adversely affecting the user experience Ü Entersekt’s layered approach— combining biometrics with advanced mobile app security and authentication based on digital certificates and encrypted push messaging

www.bankerafrica.com

13/03/2016 12:26

Celebrating

the best of the best in East

Africa!

STARTS Preparation and research is underway for the Banker Africa Awards. The Awards are grouped in four regional categories: North Africa, Southern Africa, East Africa and West Africa.

APRIL 2016

To learn more about the Awards process, please email events@cpifinancial.net

CPI Financial The professional face of financial media CPI Financial is Africa and the Middle East’s leading financial publisher with a portfolio of market-leading products educating and informing readers about the latest trends and developments in banking and finance as it affects them.

CPI Financial FZ LLC • PO Box 502491 Al Shatha Tower, Office 1209 Dubai Media City, Dubai, U.A.E. Tel: +971 (0) 4 391 4681 • Fax: +971 (0) 4 390 9576 • www.cpifinancial.net

BA awards 2016_EA.indd 1

06/03/2016 11:32

TECHNOLOGY

Transforming lending with predictive insights Harnessing real-time data can transform banks’ lending practices, profit-making and risk approach, says Ravi Pratap Singh, Executive Director & President of Products, Nucleus Software

anks play a key role in facilitating Africa’s economic growth. To support this critical function, they are increasingly looking at technology to play a vital role by helping lenders make faster and more accurate credit decisions. According to the International Monetary Fund (IMF), identifying sufficient lending opportunities has been a key problem for African banks. This has, in turn, led to excess liquidity within the banks with the ratio of liquid assets to total assets exceeding 25 per cent. In addition to that, non-performing loans constitute 7.8 per cent of the total assets for banks in the middle income countries in Africa as compared to 1.9 per cent for the rest of the world. The banks are seeking to not only attract and retain the right customers, but also to make their collection processes more effective and improve their overall credit quality. While they are wary of turning down potential clients, which reduces their profits and may also damage the bank’s reputation, they are equally concerned about making the wrong decision—accepting business that will result in future nonperforming loans. The rate of change of technology, competitive offerings and economic

conditions makes matters more challenging. While improving their reach and retaining existing customers, lenders need to improve their operations across the entire loan lifecycle. How do they do that? Operating on real time data rather than historical data would be a good place to start.

DETERIORATING CREDIT QUALITY: RINGING THE BELL FOR CHANGE?

Ravi Pratap Singh

Every major decision in a bank to drive revenue, control costs or mitigate risks in their lending process can be improved by using real time data and analytics. - Ravi Pratap Singh

Lending decisions have been proven to be more effective when they are made based on predictive insights powered by real-time data. With the exponential growth and availability of data, both structured and unstructured, big data can be combined with historical, transactional data to uncover new opportunities and bring down costs. For example, by leveraging big data at the underwriter decision making stage, decisions for ‘refer/on hold’ applications can be made after analysing the current behavioural and risk patterns of the customer. The number of investigations for ‘on hold’ applications is reduced, thereby bringing down time and cost while also freeing people to focus on more important activities. In addition, fraudulent customers can be detected more easily.

www.bankerafrica.com

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08/03/2016 14:46

Risk managers across the globe are looking to use structured and unstructured data to make more accurate risk predictions along with improving their understanding of the potential impact of a range of risks. They also seek to link them better to the organisation’s strategy. Customer relationship managers are actively looking at analytics to improve customer service while the collection departments want to use analytics to drive down costs and at the same time increase collections. In fact, every major decision in a bank to drive revenue, control costs or mitigate risks in their lending process can be improved by using real time data and analytics.

Financial institutions worldwide are increasingly leveraging analytics to Ü Reach the right customers with the right products Ü Deliver a superior customer experience through faster on-boarding Ü Identify, target and retain the most profitable customers Ü Drive up recovery rates while driving down collection costs Financial institutions can gain a competitive edge with the ability to make data-driven decisions seamlessly throughout the lending value chain. In a recent survey of global financial institutions, 55 per cent of the respondents said they were using predictive analytics to create new revenue opportunities, 45 per cent said they were leveraging predictive analytics for customer services and 43 per cent of respondents were using the results of predictive analytics for product recommendations and offers.

SO HOW DO FINANCIAL INSTITUTIONS LEVERAGE ANALYTICS TO DELIVER VALUE AT EACH STAGE OF CUSTOMER AND LOAN LIFECYCLE?

Meet

Mark, Dave and Caroline. Three different people with different preferences, different banking needs, different credit histories, and different purchasing patterns. Mark is looking for a personal loan while Caroline has a housing loan requirement. Dave does not have a loan requirement currently. The bank wants to reach the right customers with the right products. Financial institutions can reach the right customers at a lower cost with accurate customer segmentation which helps improve targeted marketing efforts. Marketing campaigns can be launched through the right channels for improved reach and enhanced business impact. Historical multi-channel customer data can also be analysed to offer best-fit products for each segment based on customer propensity. After applying for loans, Mark and Caroline come to the bank to submit their documents. The bank wants to ensure a fast and hassle-free onboarding process for them. By automating complex tasks, analytics can help reduce the loan origination time and support faster credit decisions based on the segment’s risk profile. The loan processing time is reduced through auto credit decisions driven by scorecards and strategy maps resulting in enhanced customer experience. This results in the bank significantly improving the customer acquisition process and the loan book quality. Mark is now a highly valued customer of the bank. The bank is happy and wants to make him a customer for life.

CRM data and loan repayment patterns are analysed enabling lenders to identify the causes of customer churn, and gain insights as to how to retain profitable customers. Relevant products can then be bundled to increase customer lifetime value and portfolio diversification. Caroline has, however, defaulted on her loan repayment. The bank wants to recover the overdue amount as cost effectively as possible, ideally while creating the minimum upset. Predictive insights help the bank develop optimum collection strategies across all the stages of loan delinquency, reducing operational expenditures and increasing recovery rates. They can be used to customise the strategy for each client profile. Collection activities are intensified based upon the type and level of client relationship, as well as the probability of debt recovery. Improved predictions result in a significant decrease in nonperforming loans.

THE WAY AHEAD: ANALYTICS TO PLAY A PIVOTAL ROLE IN DRIVING EFFICIENCIES IN THE LENDING INDUSTRY While some financial institutions have begun to see real benefits of using realtime data to gain insights, many are still working in isolated silos and hence are not able to leverage predictive analytics at the optimal level. However there is a gradual shift in the mindset with more and more financial institutions looking at analytics to improve their loan lifecycle management. With the huge growth of data, financial institutions can gain a strategic advantage by using predictive insights to make improved lending decisions that are better aligned to current and future economic conditions. They can use predictive analytics to rapidly adjust to fast changing market conditions and steer their portfolios through uncertain times.

www.bankerafrica.com

page 40-41 Tech-Nucleus030.indd 41

41 08/03/2016 14:46

GOVERNANCE

Slipping on peels A new survey highlights the biggest risks in the banking world, from bankers and analysts themselves

(CREDIT: LOPATIN ANTON/SHUTTERSTOCK)

very two years, the Centre for the Study of Financial Innovation (CSFI) and PricewaterhouseCooper (PwC) come together to survey banking leaders around the world on the top industry risks and their capacity to deal with them. This year’s results, Banana Skins Index 2015, identifies 24 key threats with macroeconomic environment, regulations and criminality taking the top three spots. The report captures the mindset of bankers in the last quarter of 2015, when the banking system had largely recovered from the financial crisis, but concerns about sustainability were beginning to grow. In a statement alongside its findings, PwC noted how international factors

had shaped risk perceptions within banking institutions. “The previous survey, the first in the post-crisis era, showed a hardening of the view that the external risks identified were damaging, but also a lower concern with crisis-critical issues such as credit risk, capital adequacy and liquidity,” it said, noting that these three were not in the top ten overall factors for the first time since the crisis began. “The latest survey confirms these fears. Technology and criminality risk are now in the top five, ranking alongside regulation and political interference as the top threats to the industry. However the dominant finding is the shakiness of confidence in the macro-economic outlook where high debt, interest rate uncertainty and emerging market difficulties threaten the recovery,” it said.

Andrew Hilton, Director of CSFI, nevertheless said he found the results a bit puzzling, particularly the fact that ‘macroeconomic risk’ is considered the number one threat. “True, there has been a great deal of attention recently on China’s economic slowdown—but that is not new. And the US/UK recovery, in particular, seems to be consolidating. I surmise that…there was a fair amount of conflation in respondents’ minds—the ‘macroeconomic environment’ with ‘credit risk’, ‘risk pricing’ and ‘interest rates’, for instance. Equally, my guess is that, for many respondents, ‘criminality’ and ’technology risk’ overlapped—which would make cyber risk an even more pressing concern than this year’s report suggests it is,” he said.

www.bankerafrica.com

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08/03/2016 14:53

Hilton also expressed surprise that, “in a regulatory world dominated by the demands of TLAC [total lossabsorbing capacity], respondents are so relaxed about capital availability.” Concerns over regulation also fell this year, though they were still relatively high at spot number three. Dominic Nixon, Global FS Risk Leader, PwC Singapore, said that the rising fear of macroeconomic threats made sense in today’s climate. “Despite prudential reforms, banks remain vulnerable to high debt levels, future interest rates, weakness in China and other emerging markets, and softening commodity prices. Lower growth rates, together with regulatory reforms will put pressure on banks to manage returns,” he said. One survey respondent from South Africa, who stayed anonymous, was quoted as saying that, “[For] Africa as a whole, the state of the economy— especially in countries very dependent on one particular industry—over the next couple of years will be precarious, and strict monitoring needs to [be applied].” Nixon also noted that the sharpest rise in concern in 2015 was about criminality, which rose from number

nine in 2014 to number two in this survey. Criminality, including money laundering, tax evasion and cyber threats, has grown in importance with the rise of fintechs and banks’ reliance on technology. Emerging markets ranked the 15th concern in the survey, with one anonymous US respondent predicting that “disruptions in the Middle East, North Africa and China will have a significant negative effect on the world economy in 2016.” Several respondents expressed concern about North Africa and Nigeria, but China’s slowing economy stole most of the attention. The potential stalling of Chinese trade and investment has worried some in Africa, where the parallel commodities slowdown has already put pressure on economies. As one South African respondent summed it up, “I expect the African banking industry to face significant challenges in the next two to three years on the back of a very challenging macroeconomic environment with slowing economic growth, commodity prices under pressure for longer, volatile equity and capital markets [and] negative sentiment towards emerging markets.”

The top ‘banana skins’ in 2015: 2014 ranking in brackets

1 Macroeconomic environment (3) 2 Criminality (9) 3 Regulation (1) 4 Technology risk (4) 5 Political interference (2) 6 Quality of risk management (11) 7 Credit risk (7) 8 Conduct practices (16) 9 Pricing of risk (6) 10 Business model (-) 11 Social media (19) 12 Reputation (-) 13 Capital availability (10) 14 Interest rates (12) 15 Emerging markets (17) 16 Shadow banking (20) 17 Currency (22) 18 Liquidity (15) 19 Corporate governance (8) 20 Management incentives (21) 21 Derivatives (18) 22 Human resources (23) 23 Reliance on third parties (24) 24 Sustainability (25)

Source: Banana Skins Index 2015, CSFI and PwC

The biggest threats, according to… BANKERS

OBSERVERS (Analysts, consultants, academics)

RISK MANAGERS

Macroeconomic environment

Regulation

Criminality

Regulation

Political interference

Regulation

Criminality

Technology risk

Conduct practices

Credit risk

Quality of risk management

Conduct practices

Capital availability

Political interference

Pricing of risk

Reputation

Quality of risk management

Business model

Pricing of risk

reputation

Social media

Interest rates Source: Banana Skins Index 2015, CSFI and PwC

www.bankerafrica.com

page 42-43 Governance 031.indd 43

43 10/03/2016 17:05

OUTLOOK

Tough times ahead, but growth on the horizon Currency pressures, external factors and commodities’ drop are creating challenging market conditions, but profitability should stay solid in 2016

he outlook for African banks is not rosy, according to the three major ratings agencies, Standard & Poor’s (S&P), Moody’s Investors Services and Fitch Ratings. In the three agency’s separate reports, each attributed rising bank risk to a combination of increased sovereign issues, including falling commodity prices, slower GDP growth, weaker currencies, greater political risks and external factors. In this environment, Fitch said that it expects Sub Saharan African (SSA) banks are likely to face slower growth, weaker earnings, worsening asset quality and tighter liquidity and capitalisation. Despite this, ratings should not be affected. Many African institutions— notable exceptions being those in South Africa, a few in Mauritius, Namibia and elsewhere—are in the ‘B’ range of ratings by each of the three agencies, a rating grade that generally reflect these risks. But asset quality has deteriorated, and the rating agencies note that banks could experience a risky rise in nonperforming loan (NPL) rates—with oil prices still low and the commodities market as a whole stagnant, other sectors are beginning to suffer. Fitch also noted that the region is in a higher interest rate cycle, which will initially lead to higher retail

44 page 44-46 Outlook031.indd 44

and SME NPLs; Moody’s points out that Government payment arrears and cuts in public investment could trigger defaults outside of oil and gas, such as the construction or broader corporate sectors. “Further pressure on asset quality comes from depreciating currencies, which are negative for the real economy as the region is highly importdependent. We are already seeing higher NPLs mainly in the trading and manufacturing segments, which are typically some of the banks’ largest industry concentrations,” Fitch said. S&P Credit Analyst Natalia Yalovskaya commented, “In our view, the recent oil-price shock, currency risk, and legacy portfolio issues are the key threats for emerging EMEA banking sectors in 2016. But we also regard political and market uncertainties, among other factors, as latent threats. We believe banking environments will deteriorate further and therefore foresee risks increasing for banks in 2016.”

REGULATORY WEAKNESSES Both Fitch and Moody’s highlighted the impact that Basel regulations—most countries are on Basel II compliance, while South African is on Basel III— have had on banks’ capital ratios and outlooks. Fitch said that while bank capital ratios are generally high due to these compliance requirements, in

the current environment they may not suffice. In fact, lower retained earnings and currency devaluations are eroding regulatory capital ratios, according to Fitch. Moody’s own research found that even among relatively few banks complying with Basel requirements, there are still limited crisis management and resolution framework tools— meaning regulators are often powerless to intervene before a bank is placed into liquidation. Banks’ appetite for regional expansion is exacerbating these regulatory and supervisory shortfalls, Moody’s added. It contrasted two of the major banking centres, South Africa, where bank supervision is ‘advanced and efficient’ and Mauritius, where corruption scandals have exposed sector weaknesses. However it is expected that SSA banks will maintain their strong capital buffers, with equity-to-assets and capital adequacy ratios of 10 per cent and 17 per cent respectively. “Current capitalisation will allow banks to absorb some unexpected credit losses,” Moody’s said. This is particularly true of several SSA institutions, but less so for North African ones—in Egypt and Tunisia, Moody’s reported equity-to-assets ratios of under 7.5 per cent.

www.bankerafrica.com

08/03/2016 15:20

CREDIT AND CURRENCY Africa is still one of the world’s fastest growing regions, with real GDP growth across the continent still averaging more than four per cent in 2016. “Structural reforms, competitiveness gains, greater political stability and the longer-term impetus from an emerging middle class will increase credit demand,” Moody’s forecasted. Strong regional trading blocs and growing financial inclusion through mobile technology are also driving credit, which Moody’s predicts will exceed 10 to 12 per cent this year, particularly in Egypt, Morocco and Kenya. South Africa, Angola and Nigeria will experience lower credit growth due to domestic pressures. Still, domestic banking lending to the private sector in SSA is just 29 per cent of Appendix GDP according to the ratings agency’s

numbers, indicating a large opportunity for growth. Moody’s forecasted that bank profitability with be broadly stable, with pre-tax return on profit averaging around 21 per cent. Though changing loan-loss provisioning requirements may limit growth, lending should increase strongly this year. Nevertheless, Moody’s predicted that revenue streams will remain undiversified and operational efficiency will continue to be relatively low. “High returns of African banks contain higher risks—relatively low government ratings and inefficient financial intermediation are main reasons for wider interest spreads,” Moody’s said. Each report noted that customer deposits are still the main funding source for most banks, accounting for

up to more than 70 per cent of assets in some banks. Fitch added that, “Banks are primarily customer deposit-funded, and deposit growth will continue given the under-banked nature of most countries. Foreign-currency liquidity is, however, scarce. Refinancing risk on USD borrowing could be challenging but is expected to be moderate in 2016—it will probably be more of an issue in 2017 and 2018.” The foreign currency scarcity has already become a problem for several institutions in SSA. Moody’s said that these liquidity risks are exacerbated by the inability of central banks to act as ‘lenders of last resort’. Fitch said that while local-currency liquidity is satisfactory, but sensitive to monetary policy actions, the cost of funding will continue to increase. cont. overleaf

ISSUERRatings RATINGS Issuer ISSUER Banco Angolano de Investimentos SA Banque Gabonaise de Developpement CFC Stanbic Bank Limited The Mauritius Commercial Bank Ltd. Access Bank Plc Bank of Industry Limited Diamond Bank Plc FBN Holdings Plc Fidelity Bank PLC First Bank of Nigeria Ltd First City Monument Bank Ltd. Guaranty Trust Bank PLC Stanbic IBTC Bank PLC Stanbic IBTC Holdings PLC Union Bank of Nigeria PLC United Bank For Africa Plc Wema Bank PLC Zenith Bank Plc Absa Bank Limited Barclays Africa Group Limited Development Bank of Southern Africa FirstRand Bank Limited Investec Bank Limited Investec Limited Land and Agricultural Development Bank of South Africa Nedbank Group Limited Nedbank Limited Standard Bank Group Limited Standard Bank of South Africa Limited (The) Ecobank Transnational Incorporated

COUNTRY Angola Gabon Kenya Mauritius Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Nigeri a South Africa South Africa South Africa South Africa South Africa South Africa South Africa

CURRENT LT IDR / Outlook / VR National Rating B+/Stable/b NR B/Stable/ NR NR BB −/Stable/b AAA(ken) BBB −/Stable/bbb − NR B/Stable/b A−(nga) BB −/Negative/ NR AA+(nga) B/Stable/b − BBB+(nga) B/Stable/b A(nga) B/Stable/b − BBB+(nga) B+/Stable/b A+(nga) B/Stable/b − BBB+(nga) B+/Stable/b+ AA −(nga) NR AAA(nga) NR AAA(nga) B/Stable/b − BBB+(nga) B+/Stable/b A+(nga) B−/Stable/b − BBB −(nga) B+/Stable/b+ AA −(nga) BBB/Stable/bbb − AAA(zaf) BBB/Stable/bbb − AAA(zaf) NR AA+(zaf) BBB −/Stable/bbb − AA(zaf) BBB −/Stable/bbb − AA −(zaf) BBB −/Stable /bbb− AA −(zaf) NR AA+(zaf)

END -2014 LT IDR / Outlook / VR National Rating B+/Stable/b NR B+/Negative /NR NR BB/Stable/b AAA(ken) NR NR B/Stable/b A−(nga) NR NR B/Stable/b − BBB+(nga) B/Stable/b A(nga) B/Stable/b − BBB+(nga) B+/Stable/b A+(nga) B/Stable/b − BBB+(nga) B+/Stable/b+ AA −(nga) NR AAA(nga) NR AAA(nga) B/Stable/b − BBB+(nga) B+/Stable/b − A+(nga) NR NR B+/Stable/b+ AA −(nga) A−/Negative/bbb AAA(zaf) A−/Negative /bbb AAA(zaf) NR AA+(zaf) BBB/ Negative /bbb AA(zaf) BBB −/Stable/bbb − A+(zaf) BBB −/Stable/bbb − A+(zaf) NR AA+(zaf)

South Africa South Africa South Africa South Africa Togo

BBB −/Stable/bbb − BBB −/Stable/bbb − BBB −/Stable/bbb − BBB −/Stable/bbb − B/Stable/b

BBB/ Negative /bbb BBB/ Negative /bbb BBB/ Negative /bbb BBB/ Negative /bbb B/Stable/b

AA(zaf) AA(zaf) AA(zaf) AA(zaf) NR

AA(zaf) AA (zaf) AA(zaf) AA(zaf) NR

NR – Not rated. Source: Fitch Fitch Source:

www.bankerafrica.com

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45 08/03/2016 15:20

OUTLOOK

THE OUTLOOK ON KEY CREDIT DRIVERS IS MOSTLY STABLE ACROSS THE REGION Capital and funding/liquidity are the key pillars of stability, providing banks with robust buffers to withstand pressures in operating and credit conditions BANKING OUTLOOK

OPERATING ASSET RISK ENVIRONMENT

CAPITAL

PROFITABILITY

FUNDING & LIQUIDITY

GOVERNMENT SUPPORT

Angola

Deteriorating

Stable

Deteriorating

DRC

Stable

Egypt

Stable

Ghana

Deteriorating

Stable

Deteriorating

Stable

Deteriorating

Kenya

Stable

Deteriorating

Stable

Mauritius

Stable

Morocco

Stable

Nigeria

Deteriorating

Stable

Deteriorating

Stable

South Africa Stable

Deteriorating

Stable

Tunisia

Deteriorating

Stable

Source: Moody’s Investors Service

This table references all African banking systems in which we maintain bank ratings, However, we currently maintain outlooks at the system level solely in Egypt and South Africa cont. from page 45

RESPONDING TO THE ENVIRONMENT “Faced with some tough challenges, policymakers have used a number of actions to stave off economic deterioration,” Fitch said. But overall, it added, “The policy response has been negative for banks.” These actions, expected to continue through 2016, include higher cash reserve requirements, interest rate rises, currency devaluation and foreign currency controls. Fitch highlighted the two biggest economies, Nigeria and South Africa, as example—Nigeria cut its base rate two percentage points to 11 per cent and South Africa raised interest rates by to 6.25 per cent in November 2015, with more increases likely in the future. “Some central banks have responded by devaluing currencies, whereas South Africa maintains a floating exchange rate and the rand has fallen by 30 per cent since the beginning of 2015. Banks generally require foreign-currency funding to lend to major corporates and for trade finance. The lack of foreign-currency

46 page 44-46 Outlook031.indd 46

funding will lead to further asset quality pressure and weaker growth in our view. This is a notable constraint in Nigeria, where access to foreign currency has tightened substantially,” Fitch added. Some countries are in the process of implementing national development plans that could help stimulate the economy. But many others, such as South Africa, Angola and Nigeria,

are struggling to meet development needs while slashing budgets. Tighter fiscal plans will sadly hit infrastructure budgets hard in the near-term. “The commodities super cycle that characterised much of the past decade ended in 2015,” Fitch said. Between the commodities prices fall, China’s slowdown and US rate hikes, it will be a tough market to navigate this year.

There’s promise in Islamic finance Despite difficult market conditions, Moody’s said there is a bright spot on the horizon. “Africa provides huge potential for Islamic finance due to low banking penetration and a Muslim population of over 230 million,” it said in its 2016 Outlook. The continent’s considerable infrastructure and project financing needs fit well with Islamic financing instruments, especially the asset-backed Sukuk, or Islamic bond. Recognising the potential, authorities in several African countries have been leading the regulatory push for Islamic finance. South Africa and Senegal issued Sukuk in 2015, while Morocco and Uganda authorised the establishment of Islamic banks and windows. Moody’s estimated that 40 to 50 Islamic banks would eventually operate on the continent, with significant growth over the long-term. “Operations remain narrow and small in scale for now; more capital and M&A activity will help to unlock potential,” it said.

www.bankerafrica.com

08/03/2016 15:20

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bleed guide.indd 1

22/02/2016 11:52

SECTOR FOCUS TRADE FINANCE The Suez Canal, (pictured) makes Egypt critical to regional trade.(CREDIT: DONVICTORIO/SHUTTERSTOCK)

Facilitating trade growth Strong international trade is a cornerstone of Egypt’s continued economic prosperity

(L-R) Tarek Amer, Governor of the Central Bank of Egypt, and Dr. Benedict Oramah, President of Afreximbank, signed the $500 million trade facility ahead of the Sharm el-Sheikh conference.

ingering questions around security and unrest have threatened to drag on the Egyptian economy, still one of the biggest in Africa. But the atmosphere was positive as state leaders, bankers and investors gathered in Sharm el-Sheikh for the Africa 2016 Forum, stressing that inter-African cooperation would be key for the future of trade and investment. “[The Forum] not only aims to present investment opportunities that Africa offers to the international business community, but also aims to pave the way for more communication and cooperation,” Egypt’s President Abdel Fattah al-Sisi said as he inaugurated the Forum. Regional cooperation was not just a panel buzz phrase—on the sidelines of the Forum, a key agreement was

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08/03/2016 12:53

signed between the African ExportImport Bank (Afreximbank) and the Central Bank of Egypt (CBE) for a $500 million facility to help Egyptian importers alleviate short-term foreign currency availability constraints to the importation of strategic and key industrial products. Under the terms of the agreement, Afreximbank, a multilateral institution based in Cairo, will provide the ‘Revolving Global Central Bank of Egypt-sponsored Countercyclical Trade Liquidity Facility’ to eligible Egyptian importers that receive Central Bank approval and support productive sectors. The facility will focus on imports considered strategic to the Egyptian economy, Afreximbank said. Trade is vital to Egypt’s economy, and liquidity issues have put pressure on its growth. In January, the CBE both raised requirements for SME lending and raised the amount of US dollars that local companies could deposit in banks. While the former is meant to support the massive and largely untapped SME market, the latter addresses liquidity restraints that banks have struggled with recently. Dr. Benedict Oramah, President of Afreximbank, said that the bank planned to move quickly on the implementation of the facility in order to ensure the quick delivery of the expected benefits. “This facility draws from the $3.5 billion Counter-cyclical Trade Liquidity Facility that Afreximbank is deploying across its member countries to assist them in an orderly adjustment to commodity price and terrorism-induced shocks,” Dr. Oramah told Banker Africa. “The $500 million facility we are implementing in Egypt will expand access of manufacturing exporters and importers of essential goods and services in Egypt to foreign exchange, thereby alleviating pressure on forex reserves and exchange rate while expanding

trade enhancing domestic investments. This will also assist CBE in its role of maintaining price stability in the economy. We are excited to be providing this support to a country that strongly supports the work the Bank is doing.” Tarek Amer, Governor of the CBE, commended Afreximbank for standing by Egypt and promised that the continental trade finance institution would be satisfied with the performance

of the relationship it was getting into through the new facility. He added that the CBE is striving to improve and bring discipline into the Egyptian market through the substantive policy measures it was implementing, and the measures have started bringing results, as some exchange rate improvements had been observed and liquidity was coming back. The sector is doing well, he said.

Insider’s view What share of NBAD Egypt business does trade finance occupy, and do you see this growing in the near- or medium-term? [It is] 30 per cent—NBAD Egypt is very active in trade and our AA- credit rating is the backbone for our proposition. The trade share of NBAD Egypt’s business is expected to reach 40 per cent with export business picking up in Egypt. What are the biggest challenges/ Ahmed Ismail, NBAD Egypt CEO, shared his forecast for the market and trade prospects. needs that businesses approach you with? Foreign currency is one of the biggest challenges for the import trade business, and regulatory constraints. Businesses approach us for innovative trade solution to overcome challenges in the market. Has the decline of oil prices impacted your growth, clientele or their sectors of interest? It did negatively impact some clients in certain sectors, however the drop in the prices of commodities in general helped other sectors. From another angle the drop in oil is affecting the FDIs and potential projects and investments, which backfires at trade. Several of the banks offering trade finance in Egypt and the region are part of Gulf-originated banking groups, such as yourself. Why do you think that is, and what do you think Gulf banking institutions can bring in this sector? While the Egyptian market is quite challenging the potential margins supersedes. The Gulf banks are generally acquainted with the Egyptian market and having the Egyptian market among their portfolios helps in achieving a good portfolio diversification.

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49 13/03/2016 12:29

THE VIEW

PICTURE OF THE MONTH

Kofi Annan, Chairman of the Kofi Annan Foundation and former United Nations Secretary-General; Daniel Kablan Duncan, Prime Minister of Cote d’Ivoire; Gayle E. Smith, Administrator, USAID, speak at the press conference for ‘Africa’s New Deal on Energy’ at the Annual Meeting 2016 of the World Economic Forum in Davos, Switzerland, 21 January 21 2016 (CREDIT: REMY STEINEGGER, WEF/FLICKR).

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