#32 - March 2016

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ISSUE 32

ISSUE 32 The middle road to recovery: South Africa’s budget towards growth

The middle road to recovery

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OPINION

Bringing oil producers together

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TRAILBLAZERS

Cost and earth-saving energy

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TECH

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CONTENTS

ISSUE 32

Editor’s Letter Hello readers,

G

enerally when I collect the ratings announcements to compile each month’s review (pg. 7), there’s a nice distribution of colours and arrows. Not the case this time. It was a hard start to the year across the oiland mineral-producing countries, and the effects are beginning to show not just in their own economies, but amongst their neighbours. Nigeria and Angola are at the forefront of this struggle, yet Nigeria’s Minister of State for Petroleum Resources, Dr. Emmanuel Kachikwu, did not appear optimistic that oil prices would soon relieve this pressure (pg. 16).

Of course, Angola and Nigeria have both gone through periods of phenomenal growth that have thus far cushioned some of this fall. Economic slowdown and strain on state revenues looks markedly different in South Africa, where decline was slow and steady until the rand’s dramatic depreciation in December 2015. This issue we explore whether the budget can put the country back on track (pg. 26) and how banks have fared so far in this climate (pg. 20).

Things aren’t all bad. As the latest M&A and private equity reports for the continent show (pg.

16) investment is looking a bit different these days—focusing on mid-market and consumerdriven companies—but it’s still coming in. With consumer’s growing spending power, this trend is only expected to grow (pg. 48). It’s also leading to new innovations to bring in retail customers, as Moza Banco, one of Mozambique’s fastest-growing institutions, can attest to (pg. 30).

In fact speaking of Moza Banco and innovation, you may find its name and a few others amongst the winners of the 4th Banker Africa Annual Southern Africa Banking Awards (pg. 14). This year we wanted to make sure that small and large institutions alike, across the Southern region, were recognised for the headway they have made in their fields. Thank you for your votes on www. bankerafrica.com, and keep your eyes peeled—the always exciting East African region is next.

With that, I’ll let you get to reading.

Until next time,

20 IN THE NEWS 6 News analysis: A flexible recovery in Egypt

7

Essential financial news from around the continent

10

Spotlight: South Sudan

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

Dubai Chamber’s Business Beyond Borders takes on trade with Africa

14 And the winners are…

The winners of the 4th annual Southern Africa Banking Awards

OPINION 16 Bringing oil producers together

16

Dr. Emmanuel Kachikwu, Nigerian Minister of State for Petroleum Resources, on oil prices

THE MARKETS 18 Smaller values bring in big deal activity

Mid-market deals drover M&A and private equity in 2015

COUNTRY FOCUS: SOUTH AFRICA 20 Between a rock and a slow economy

Several factors came together to make 2015 a difficult year in South African banking

24

24

Innovating through the slow economy There are opportunities to grow, says Jacques Celliers, CEO of First National Bank

26

Sarah Owermohle

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HAPPENINGS 11 Turning risks to rewards

POLICY SPOTLIGHT 26 A middle road to recovery

Will the proposed consolidation measures in South Africa’s 2016 Budget be enough?

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CONTENTS

ISSUE 32

CASE STUDY 30 The ‘almost’ branchless future

Moza Banco achieved aggressive growth in large part through digital banking, says CIO Marco Abalroado

32

Nurturing financial security Financial inclusion for smallholder farmers requires specific safeguards

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

TRAILBLAZERS 34 Shining a light on cost and earth-

32

SECTOR FOCUS 36 A path for Islamic finance

EDITORIAL editorial@cpifinancial.net

ADVERTISING sales@cpifinancial.net

Path Solutions is driving new momentum in Africa, says Mohammed Kateeb, Group Chairman & CEO

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

Sales Director OMER HUSSAIN omer@cpifinancial.net Tel: +971 4 391 5419

38

Inclusion and innovation The International Forum on Islamic Finance gathered in Khartoum to discuss the industry

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

TECH 40 When knowledge really is power

34

Business intelligence is shaping modern banking, says Tammo van Leeuwen of CR2

42

Moving bank lending to the cloud Rising expectations mean cloud technology is vital, writes Ravi Pratap Singh of Nucleus Software

GOVERNANCE 44 In the long-view, project finance is

resilient Moody’s Investor Service finds project finance loans recover relatively well

42

46

Establishing a legacy of transparency Solid corporate governance brings in investors, says Crescent Enterprises

OUTLOOK 48 The market’s open

50

Research shows consumer-driven sectors like retail shopping are driving future growth

THE VIEW 50 Picture and survey of the month Cover image: Orlando Towers chimneys in Soweto, South Africa (CREDIT: GIL.K / SHUTTERSTOCK.COM) www.bankerafrica.com

ica.com www.bankerafr

ISSUE 32

ISSUE 31

The middle recovery: South Africa’s budget towards growth

Publication

Good aims, bad

28

outcomes

New chapters in Ugandan banking

38

Islamic debt as

Zone Authority and Media Free

PLUS:

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COUNTRY FOCUS

Three Mauritian banks weigh in

07/02/2016 18:29

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POLICY

Djibouti and China

40

TECH

Insight of real-time data

PLUS:

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contents032

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OPINION

Bringing oil produc ers togethe r

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ERS

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When knowle

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Afric budget a’s towards growth

Dubai Technology and Media Free Zone Authority

José Pedro de Morais

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30/03/2016 11:02

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Many systems and clearing mechanisms are old, some are new, some are so old it’s difficult to know how to integrate with them, while others are so dynamic they require continual updating.

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NEWS ANALYSIS Limits on US dollars have been removed as part of a more flexible policy (CREDIT: PER BENGTSSON/SHUTTERSTOCK).

A flexible recovery in Egypt The Central Bank of Egypt has devalued the currency and removed US dollar restrictions in a bid to bring trade and tourism back

O

n 14 March, the Central Bank of Egypt (CBE) devalued the Egyptian pound by 14.4 per cent to from EGP 7.73 to EGP 8.85 to the US dollar, responding to foreign exchange and liquidity pressure. In a statement, the CBE promised to adopt a more flexible exchange rate policy.

Before the currency devaluation, Central Bank authorities had removed deposit and withdrawals caps on foreign currency and introduced dollardenominated bonds through three commercial banks.

IHS Banking Risk Service, an analyst group, estimated that since the CBE instituted foreign currency caps for individuals in February 2015 of maximum $50,000 in deposits and $10,000 in withdrawals a day, foreign currency deposits fell from about 25 per cent to just under 20 per cent of total deposits. Corporates were limited to $30,000 maximum withdrawals a day, but this was raised to $1 million in January 2016 and later entirely removed.

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“As was the case in countries like Angola which have recently devalued their currencies to ease foreign-exchange restrictions, the lower exchange-rate regime should help to reduce banks’ payment delays and letter-of-credit shortages—but will not eliminate these altogether, given continued pressure on foreign-exchange earnings from weaker Suez Canal receipts and lower tourism earnings,” Alyssa Grzelak, Manager at IHS, said.

Grzelak also noted that banks’ net open position in US dollars is limited to no more than one per cent of capital, but indirect foreign-exchange risks are elevated, with nearly one-third of total lending in foreign currency, primarily US dollars. This means the pound’s depreciation will likely weight on regulatory capital adequacy ratios.

Moody’s Investor Services said that the change is ultimately credit positive for the country, with increased exports and foreign investment inflows outweighed the short-term negative effects of devaluation-induced inflation. Moody’s also cited the Suez

Canal receipts, along with lower petroleum exports, tourism decline and weaker petroleum exports as factors pressuring investment flows, but said a more flexible exchange rate would help overcome these challenges.

“A weaker currency is likely to improve trade competitiveness,” it said, adding that along with the caps removal, this will support a revival in economic activity and investment and a better outlook for balance of payment pressures.

For his part, Taleb Rifai, the Minister of Tourism of Egypt, expressed confidence in restored tourism and export levels in the country during discussion with the World Tourism Organisation in Berlin recently.

“We should never forget that Egypt’s tourism sector is one of the world’s most remarkable success stories. In the last decade, the number of visitors to Egypt practically tripled and so did the exports generated by international tourism.

Despite current challenges Egypt is today, and will continue to be, a world-leading tourism destination, capturing one in every four international tourist arrivals to the Middle East,” Rifai said.

www.bankerafrica.com

29/03/2016 16:30

IN THE NEWS

RATINGS REVIEW BANKS AND BUSINESSES Moody’s placed Banco Angolano de Investimentos’ B1 and B3 long-term and baseline credit ratings on review for downgrade due to pressures from oil prices and economic challenges.

Moody’s placed on review for downgrade the following eight institution ratings: the Baa2 longterm deposit and senior debt ratings of Standard Bank of South Africa, FirstRand Bank Limited, ABSA Bank Limited, Nedbank Limited, and Investec Bank Ltd; the Baa3 senior debt rating of Old Mutual Wealth Life Assurance Limited (OMWLAL); and the Baa2 foreign-currency long-term senior unsecured issuer ratings of the Industrial Development Corporation of South Africa (IDC) and the Development Bank of Southern Africa (DBSA). All followed a similar action on the South African sovereign rating.

SOVEREIGNS Capital Intelligence (CI) affirmed its long-term and short-term foreign and local currency ratings of ‘B-‘ and ‘B’ respectively on Egypt due to its low external debt and favourable maturity profile.

Moody’s affirmed Tunisia’s government issuer rating at Ba3 with a stable outlook, commenting that the rating reflects the heightened security and political risks in the country.

Moody’s downgraded the Republic of the Congo’s rating to B1 from Ba3 and places it on review, saying that the Government balance sheet had severely deteriorated.

Moody’s downgraded Mozambique from B2 to B3 and maintained its review for downgrade, noting the Government’s deteriorating balance of payments position and reduced capacity to meet outstanding debt.

Standard & Poor’s revised Rwanda’s ‘B+/B’ rating’s outlook to negative, citing increasing risk to external accounts due to depressed commodity prices and a deteriorating mining sector.

Standard & Poor’s revised Nigeria’s outlook to negative on the back of falling oil prices and their strain on government account, but affirmed the ‘B+/B’ rating, citing measured reforms.

ON THE RECORD

We need an Africa where women participate fully in decision-making and shaping the African inclusive growth story.

— Geraldine Fraser Moleketi, former South Africa Minister for Public Service and Administration and 2016 New African Woman of the Year

Gulf Capital partners with Serengeti Capital towards Sub Saharan growth

M

iddle East-based alternative investment firm Gulf Capital 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, 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.

Serengeti Capital will be advising Gulf Capital on credit and mezzanine investment opportunities in Sub Saharan Africa for its second fund, which will also look at investing in defensive non-cyclical sectors in the Middle East, North Africa and Turkey.

Walid Cherif, Managing Director of Gulf Credit Partners

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 fasttrack initiatives and a key milestone under the African Union Agenda 2063.

www.bankerafrica.com

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IN THE NEWS

ITFC and Attijariwafa Bank sign trade finance MoU

T

he International Islamic Trade Finance Corporation (ITFC), a member of the Islamic Development Bank Group (IsDB), signed a Memorandum of Understanding with Morocco-based Attijariwafa Bank to explore opportunities for Shari’ah-compliant joint trade financing in Morocco and Africa.

The partnership plans to focus on bilateral treasury and interbank transactions for liquidity investment and borrowing foreign exchange, but also opportunities for trade finance in Morocco. The ITFC has previously provided over $2 billion in financing to support Morocco’s strategic sectors, specifically for the energy and steel industries.

Quantum Global Research Lab Head joins African Development Bank

Kevin Urama, Senior Policy Advisor at AfDB

Professor Kevin Urama, who was appointed in 2013 to launch and head the Research Lab of Swiss-based investor advisor Quantum Global, has left his post to join the African Development Bank as a Senior Policy Advisor on Inclusive and Green Growth.

A seasoned development economist with extensive Africa-wide and global experience in inclusive green growth and sustainable development, Urama’s responsibilities at AfDB will include guiding and supporting Bank-wide efforts on energy, climate change, agriculture and natural resources management. He will also provide technical advice to the Bank’s Senior Management Coordination Committee and ensure cross-complex coordination and alignment of activities to deliver on the ‘High 5’ priorities of the Bank to accelerate delivery on the ground in countries and across regions.

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AfDB pledges to support Zambia against economic challenges The President of the African Development Bank, Akinwumi Adesina, recently reiterated the institution’s support to Zambia, especially the energy sector. He mentioned that reforms in the sector were critical to boost the country’s economy.

“We will work with the Government and regulatory agencies to improve management of the utility,” he said during a recent visit to the country, which will host the AfDB Annual Meeting this year..

“One of the Bank’s biggest priorities is to empower Africa. We need to unlock all the potential we have, whether it is solar, geothermal or hydro.”

Zambia, Africa’s second largest producer of copper, is facing a power crisis that has reduced production by mining firms. This has led to job losses in mining, a sector that contributes an average of 11 per cent to Zambia’s GDP. Its currency, the Kwacha, has also been performing poorly. Bloomberg reported that the Kwacha dropped by 41 per cent to the US dollar in 2015. The Bank President was accompanied by the Governor of the Bank of Zambia, Denny Kalyalya, senior representatives from the Ministry of Finance and AfDB officials. Adesina highlighted the AfDB’s strategy to combat unemployment through its ‘Jobs for Africa’s Youth Initiative’, of which Zambia will be a beneficiary. Since 1971, the Bank has committed more than $1 billion to Zambia.

FIBR project plans use of smartphone data in financial inclusion Bankable Frontier Associates (BFA) and The MasterCard Foundation launched FIBR (Financial Inclusion on Business Runways), a multi-million dollar, four-year project in Ghana and Tanzania designed to connect the unbanked to financial services.

“FIBR is exploring different types of relationships, or links, between financial service providers and poor customers,” said David Porteous, CEO of BFA.

www.bankerafrica.com

28/03/2016 15:58

Public-Private Partnerships key to financial inclusion, experts say at MasterCard conference

The conference in Dubai brought together ISO delegates.

A greater emphasis on Public-Private Partnership (PPP)-led financial inclusion efforts is needed to drive economic and social development across the Middle East and Africa (MEA), experts concluded at MasterCard’s second Prepaid and Government Conference in Dubai.

The conference brought together around 150 high-profile delegates from throughout Africa and the Middle East, including Dr. Lance Mambondiani, CEO of Zimbabwe’s Steward Bank, who presented on the introduction and use of prepaid cards.

“When public-private partnerships are directed and well-organised, we can spur positive change that impacts citizens and governments alike. We need the public sector to help with regulations and create a good business climate. On the other hand, we need the private sector to bring distribution, innovation, efficiencies, and the capacity to execute. If private players can join hands with governments and the civil society at large, all of us stand a better chance of being successful together,” Raghu Malhotra, President, Middle East & Africa, said.

New CEO of Standard Bank Offshore Group appointed Standard Bank Group has appointed Will Thorp as Chief Executive Officer of its Offshore Group, subject to regulatory approval. Thorp will lead the Bank’s offshore businesses in Jersey, Isle of Man and Mauritius, as well as distribution and support teams in London and Johannesburg.

Standard Bank Offshore Group employs 400 Will Thorp people and offers banking, investment, and trust and fiduciary products to its international client base. Thorp’s appointment follows a 14 year career at Standard Bank. During the last decade, he has held a number of roles including Finance Director of the Bank’s Russian operation, based in Moscow, and Global Finance Director–Investment Banking, based in both London and Johannesburg. He moved to Jersey in 2012 as Chief Financial Officer for Standard Bank Offshore Group.

HSBC and British Council launch new MENA school programme HSBC Bank Middle East Limited and the British Council have launched Taqaddam, a new school programme designed to support the development of life skills in 15 to 16 year olds across the Middle East and North Africa (MENA).

In a statement, the British Council cited a Young Foundation study showing that the demand in the working world is shifting from an emphasis on left-brain skills such as subject matter knowledge and technical know-how, to right brain skills such as adaptability and imagination. However many MENA graduates appear to be lacking in this area, and Taqaddam is designed to reflect these changing needs and help with 21st century living, it said.

Sabrin Rahman, Head of Corporate Sustainability, MENA at HSBC said, “The Taqaddam programme has been adopted in 90 schools across eight countries in the region.

The focus of the course is to equip nearly 2,000 young men and women with ‘soft skills’ such as confidence, assertiveness, decision-making, and the ability to stay safe and healthy.”

SimbaPay expands Africa remittance service to more EU Countries

SimbaPay, a digital money transfer provider, has expanded its instant Africa money transfer service to five new EU countries— France, Germany, Ireland, Italy and Spain— following a pilot programme that has been running for three months in the new EU countries, it said. Africans living in these EU countries will now be able to send money back home instantly and free of charge.

“Our goal of connecting all Africans living abroad to any mobile money wallet or bank account in Africa just moved one step closer,” Nyasinga Onyancha, CEO for SimbaPay, said, adding that the company will be expanding to another six countries by the end of March 2016.

www.bankerafrica.com

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NEWS SPOTLIGHT SOUTH SUDAN

South Sudan joins the East African Community

Tension with UN over human rights report and exclusion from development report

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

(CREDIT: STEVE EVANS/FLICKR)

A South Sudan’s membership will be positive for the country (CREDIT: HENRI BERGIUS/FLICKR).

When leaders of the regional trade bloc the East African Community (EAC) met in Tanzania in early March, South Sudan Vice President James Wani Igga was in attendance to bring South Sudan into the organisation.

“South Sudan’s membership of EAC is not strictly on economic benefits but has historical significance.

EAC is where we belong,” South Sudan’s Second Vice President James Wani Igga said. International observers have said its new membership will improve trade relations and hopefully improve transport costs, particularly considering South Sudan’s landlocked status. Negotiations for its membership had begun in November 2014.

Membership will also likely improve governance and administrative strength, as the EAC has several requirements for its member states. Commenting on South Sudan’s admission, the Secretary General of the EAC, Dr. Richard Sezibera, said that the country request fast-track status on its application.

“We worked together to strengthen their capacity in terms of revenue collection and customs administration among other areas,” Sezibera said.

10

new United Nations report on the human rights situation in South Sudan described horrific violations by Government forces. Though the report acknowledges that all parties in the conflict violated human rights on some level, the Office of the UN High Commissioner for Human Rights (OHCHR) says state actors bore the greatest responsibility during 2015, particularly with regards to sexual violence and murder of citizens.

Just two weeks before the searing report came out, South Sudan presidential advisor and former Finance Minister Aggrey Tisa Sabuni had remarked on his disappointment with the World Bank and the United Nations Development Programme (UNDP) decision to exclude the country from its annual Global Human Development Report since its independence in 2011. Sabuni said that the Government wanted to see how they compare with other countries on key benchmarks in health, education, water, food security, nutrition, information and civil freedoms.

Japan provides $3.2 million towards emergency relief Japan has contributed to the World Food Programme (WFP) emergency starvation and malnutrition fund for South Sudan.

“We are alarmed by the food scarcity and malnutrition rates in South Sudan,” said Ambassador of Japan Kiya Masahiko. From the contribution, $2.4 million will be used for nutrition support under WFP’s emergency response, which will assist more than 28,000 children and 6,660 pregnant women and nursing mothers with vital nutrition supplements. The rest of the funds will go towards logistics and transport support. WFP requires an additional $220 million for food and nutrition operations and another $16 million to run UNHAS over the next six months in South Sudan.

www.bankerafrica.com

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29/03/2016 16:37

HAPPENINGS

Turning risks to rewards Dubai Chamber’s Business Beyond Borders series encourages trade with Africa

Massimo Falcioni of Coface (left) discusses Africa’s trade outlook with Omar Khan (right) of the Dubai Chamber.

A

s part of its efforts to explore the Africa market, the Dubai Chamber of Commerce and Industry launched the Business Beyond Borders series entitled “Africa—Turn Risks Into Rewards” workshop in Dubai recently.

Born out of the Chamber-organised Africa Global Business Forum, the workshop served as an introduction to Africa as a whole, with the promise of later country-specific sessions.

The workshop, which was conducted

by Massimo Falcioni, CEO for Middle East Countries at Coface Emirates Services Ltd, provided on-the-ground, practical information on trading in Africa.

“The launch of this first of its kind Business Beyond Borders Series workshop, complements our reaching out to the African market strategy as we already have two international

offices running in Ethiopia and Ghana and are all set to open another office in Mozambique this year to enhance the competitiveness of our members in emerging markets of the world, especially Africa, as well as to enhance two-day trade by highlighting Dubai as the middle ground for African companies to operate from,” Omar Khan, Director of International Relations for the Dubai Chamber, said.

Falcioni said that this outlook will help Chamber members to better manage risks intelligently and strategically.

“Africa…remains a top investment region. Of the 35 fastest growing economies, 16 can be found in Africa.

That is why traditional investors including those from the Middle East divert their focus to Africa.

This development also presents

attractive opportunities for UAE-based businesses. In 2014, the UAE became the fourth largest source of FDI projects in Africa. It is one of the countries that have been actively investing in Africa along with US, France, Portugal and China. Opportunities in Africa’s real estate, hospitality, construction, telecommunications, media and technology, financial services, as well as consumer products and retail sectors are very optimistic, he said.

“To maximise the opportunity presented, businesses should protect themselves against financial setbacks,” Falconi said, using the opportunity to mention that Coface’s presence in 100 countries. Each quarter, Coface publishes its assessments of country risk for 160 countries, based on its unique knowledge of companies’ payment behaviour.

Dubai Chamber also recently launched the Africa Gateway Smart Application, giving investors information on market opportunities, trade laws and regulations and access to business tenders across the continent.

During the 3rd Africa Global Business Forum (AGBF) in November 2015, Dubai Chamber signed a memorandum of understanding with Coface and the National General Insurance Company (NGI) to cooperate in supporting Chamber members in African trade and exports, as well as supporting those exporting to Africa with access to NGI trade credit insurance products. Coface signed on to provide various value-added services that aim to assist companies entering or expanding their businesses in the continent besides organising a series of workshops and training courses.

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HAPPENINGS

And the winners are…

The fourth annual Banker Africa Southern Africa Awards saw a diverse range of banks recognised, with home-grown institutions in the lead

A

s the awards grow year on year, we decided that this time around we should recognise not just the best in the region—as there are a few big players that you may find sweep these categories—but also a select few best categories in individual Southern African markets. This gave us the opportunity to highlight innovative and fast-growing players in more unique markets like Angola and Mozambique, or much smaller, yet vibrant, markets like Botswana and Zambia, that deserve recognition for the innovation and services they have brought to the industry.

We asked for your input and you came back strong, with more than 3,500 votes cast across 29 categories on www.bankerafrica.com. A few banks in particular stood out in multiple categories, but overall your votes recognised a wide spectrum of institutions across the region.

South African powerhouses Standard Bank, Barclays Africa Group Ltd (BAGL) and First National Bank (FNB) swept their country categories as well as many of the regional awards, with the notable exception of ‘Most Socially Responsible Bank’ in Southern Africa, which went to National Bank of Malawi for its numerous CSR projects.

Standard Bank took the headline category of ‘Best Regional Bank’ for Southern Africa as well as the prominent

14

recognition of ‘Best Retail Bank’ in the region. Its corporate and investment banking (CIB) arm was voted ‘Best Investment Bank’ for the region.

BAGL followed in regional categories with ‘Best Commercial Bank’ and ‘Best Corporate Bank’ for Barclays CIB, as well as ‘Best Mobile Banking’ in Southern Africa for ABSA’s Payment Peddle product. While Standard Bank took home the regional investment and retail recognition, it was Barclays CIB that won ‘Best Investment Bank’ South Africa and ABSA that took ‘Best Retail Bank’ for the country.

South Africa’s own FNB was recognised as the ‘Best Commercial Bank’ in South Africa and also the ‘Best Islamic Offering’ for the region.

However non-South African institutions had a strong showing within their own markets, with Banco de Fomento Angola winning ‘Best Retail Bank’ and Banco Angolano de Investimentos winning ‘Best Corporate Bank’ in Angola, while innovations from Moza Banco and Millenium bim brought the banks recognition in ‘Best Online Platform’ and ‘Best Retail Bank’ in Mozambique, respectively.

Home-grown institutions also won out in several Mauritius categories, with SBM Bank taking ‘Best Retail Bank’ and AfrAsia Bank taking ‘Best Investment Bank’ for the country.

However foreign international banks took the best corporate bank title in both Mauritius and South Africa,

with HSBC Mauritius and Standard Chartered, respectively, winning the categories, and Standard Chartered taking home the ‘Best Foreign International Bank’ recognition for the region.

Foreign companies also dominated the financial technology categories, with the notable exception of South Africa’s own Entersekt, which won ‘Best Mobile Security Technology’.

In all, winners reflected the diversity and evolution of the Southern African region, with fast-growing countryspecific institutions recognised alongside first-tier regional banks.

The Banker Africa Southern Africa Awards, now in their fourth year, reflect the core philosophy of the magazine’s publisher, CPI Financial, aiming to identify and promote excellence and best practice in financial services.

“The 29 Awards winners were chosen from more than 120 nominations across all the categories by their peers in the industry itself,” Robin Amlôt, Chief Executive Officer of CPI Financial, said. “In such a competitive market as Southern Africa, and with the recent economic climate across several countries in the region, their performance stands out.”

He added, “The Banker Africa Southern Africa Awards are designed to reward excellence in financial services, identifying the key players working to help create a prosperous diversified future for all of the region’s people, businesses and economies.”

www.bankerafrica.com

page 14-15 Happenings-WA Awards32.indd 14

30/03/2016 11:03

Here are the winners of the Banker Africa Southern Africa Awards, chosen by you:

SOUTH AFRICA Best Corporate Bank

Standard Chartered Best Investment Bank

Barclays CIB

Best Retail Bank

ABSA

Best Commercial Bank

First National Bank

ANGOLA Best Retail Bank

Banco de Fomento Angola Best Corporate Bank

Banco Angolano de Investimentos

BOTSWANA Best Bank

Bank Gaborone

NAMIBIA Best Retail Bank

Bank Windhoek

MAURITIUS Best Investment Bank

AfrAsia Bank

Best Corporate Bank

HSBC Mauritius Best Retail Bank

SBM Bank Mauritius

MOZAMBIQUE Best Online Platform

Moza Banco

Best Retail Bank

Millennium Bim

ZAMBIA Best Retail Bank

Zanaco

SOUTHERN AFRICA REGION Best Retail Bank

Most Innovative Bank

Best Commercial Bank

Best Regional Bank

Most Socially Responsible Bank

TECHNOLOGY AWARDS

Standard Bank Barclays Africa Group National Bank of Malawi Best Customer Service

Investec

Best Mobile Banking

ABSA — Payment Peddle Best Islamic Bank Offering

First National Bank Best Corporate Bank

Moza Banco

Standard Bank

Best Core Banking System

Temenos

Best Payments Solution Provider

BPC

Most Innovative Tech Vendor

CR2

Best Mobile Security Technology

Entersekt

Standard Bank

Best Investment Bank

Standard Bank CIB

Best Foreign International Bank

Standard Chartered

www.bankerafrica.com

page 14-15 Happenings-WA Awards32.indd 15

15 30/03/2016 11:03

OPINION

Bringing oil producers together Dr. Emmanuel Kachikwu, Nigerian Minister of State for Petroleum Resources and former President of the OPEC Conference, anticipates cooperation to bring oil supply under control

D

December 2015, higher than the 30 million barrels per day earlier in 2015.

uring an interview at The 7th Gulf Intelligence UAE Energy Forum in Abu Dhabi, UAE, Kachikwu said an OPEC meeting is fairly possible as current prices are challenging.

That’s a big question. Up to 65 per cent of the oil producing market is outside the hands of OPEC. So unless you have all the producers coming back to the table, you really would not make a dramatic difference. My perception— and this is not an OPEC position—is that you will see the oil price get worse and then it’ll get better. I expect to see the oil price in the region of $40-50 per barrel by the end of the year. How do oil companies even survive in terms of production? Everybody is pulling out investments in these areas. How do countries even adapt? You’re going to see a lot more strife. Oil has always been a catalyst for so many things.

What is your outlook for oil prices in 2016?

I certainly hope that it doesn’t go below $30 per barrel, for the sake of the survival of everybody on the board of investors and the countries who have heavily invested in this territory. At the time that we held the last OPEC meeting [4 December], it was clear to all of us that we could not arrive at some structural way to intervene, for whatever reasons we did, prices are going to slide downwards. We did say that if oil prices then hit the $35 per barrel area, we’d look to see how we can bring the contending parties back to the table. At these prices, you begin to feel really challenged. I anticipate [an OPEC meeting] fairly quickly, possibly by the end of February or March [Update: a meeting of OPEC and nonOPEC producers has been scheduled for 17 April in Doha to discuss a potential production freeze].

Will that change OPEC’s strategy of rolling over its policy to maintain market share?

OPEC’s production averaged 31.7 million barrels a day in

16

Dr. Emmanuel Kachikwu, Nigerian Minister of State for Petroleum Resources

OPEC’s strategy to retain market share is a policy led by Saudi Arabia, but OPEC is very divided.

The big four Gulf states are on one side and members like Nigeria, Angola, Algeria, Venezuela and Ecuador are on the other. How did you as President bridge that gap between OPEC members at the December meeting?

I had to move from emotion to logic. My duty as OPEC President was to make sure everybody left the room united rather than box each other out, which we succeeded in doing. Now, we have a

www.bankerafrica.com

page 16-17 Opinion-Opec Oil 032.indd 16

29/03/2016 17:07

two to three month window before we go back. The prices unfortunately are moving lower faster than the barrels are going off the market.

And to make everything worse, the US shale producers are going to be there no matter what we do. They may disappear momentarily when the prices are too low for them to survive.

But sometime down the road, the US shale producers will be back—they have become a constant equation in the dynamics of the global oil industry.

Hopefully, producers are taking time during this period to look at costs. All of us got spoiled when high oil prices meant there was big money and all kinds of mega-projects just didn’t make sense. In Nigeria, for example, one of the things that we’re doing is looking at our projects and saying: do these projects make sense? A lot of projects today don’t make sense [with current oil prices].

And this is what you’re suggesting is going to balance the market and reduce the oversupply that is pushing oil prices down?

prices to climb to $50-$60 per barrel by the end of 2016?

I would not say $60 per barrel but I think I would comfortably say the price will get closer to $50 per barrel, as almost 50 per cent of investments are being pulled out of the market right now. Ultimately, that will impact volume.

Saudi Arabia has added about 1.5 million barrels per day in the last couple of years to the market and Iran’s Minister of Petroleum Bijan Zangeneh said the country still plans to add over one million barrels per day in 2016. Plus, Iraq wants to go from 4.3 million barrels per day to six million barrels per day by the end of the decade. This sort of mentality doesn’t help solve the equation?

No, it doesn’t. But, if you pack all those barrels into the room and the prices continue to slump, it does not make fiscal sense for anybody to keep presenting their natural resource. In Nigeria, diversification is key, because the current oil numbers don’t make any sense for us.

Yes, absolutely.

You think that a lack of investment on higher cost projects will bring stability back to the oil market and enable

Russia is producing at an incredible number, reaching a record high of 10.8 million barrels per day in December.

What has happened to this

Gulf Intelligence Gulf Intelligence facilitates knowledge exchange between stakeholders. The strategic communications and public affairs consultancy produces boutique industry forums and roundtable discussion series globally with an architecture that ensures all participants engage in a dynamic and competitive exchange of knowledge towards a shared goal. The Dubai-based firm assists Middle East companies and government entities to tap dormant intelligence and create knowledge reservoirs that can be utilised to bolster their profiles, to communicate with stakeholders and to overwhelm competitors.

US shale producers are going to be there no matter what we do.

They may disappear momentarily when the prices are too low for them to survive.

But sometime down the road, the US shale producers will be back— they have become a constant equation in the dynamics of the global oil industry.

— Dr. Emmanuel Kachikwu, Nigerian Minister of State for Petroleum Resources

concept of Moscow showing up to the OPEC meetings and having backdoor meetings?

Well, that hasn’t taken barrels off the field.

No, nobody has. So there’s no spirit of OPEC and non-OPEC cooperation in 2016?

I don’t see it. I think you’re going to have informal factors bring parties together. It’s not going to be formal meetings where parties are agreeing to take barrels off the field. And those informal factors are going to be led by the investors.

It won’t be a case of politics bringing producers together?

I don’t see that happening. That’s my perception today.

Are you suggesting that there is still no will to give up market share?

I would say that, yes.

www.bankerafrica.com

page 16-17 Opinion-Opec Oil 032.indd 17

17 28/03/2016 16:39

THE MARKETS

Smaller values bring in big deal activity

Annual African Private Equity Da

Despite economic challenges in 2015, mid-market deals in consumer-driven sectors flourished

A

823

ccording to the annual Deal Drivers Africa report,

by Mergermarket, M&A activity in Africa was steady umber of Africa PE deals, in 2015 despite challenges ranging 10 - 2015 from China’s slowdown to a drop in commodities prices.

There were 290 deals in 2015, up one per cent from the year prior and the highest volume on record since 2007, but deal value tal value of Africa PEfell 26 per cent to $27.3 billion in 2015. Mergermarket explained that the als, 2010 - 2015 mid-market was busiest, with dealmakers focused on smaller investments; 88 per cent of transactions were valued up to $250 million, with only five deals over the $500 million mark.

Inbound investment into Africa tal amount raised byfor 70 per cent of deal value accounted in 2010 2015, proving rica PE funds, - 2015the attractiveness of the market, Mergermarket said.

US$21.6BN

US$16.2BN

African Private PRIVATE Equity Data EQUITY Tracker provides a According to Mergermarket ary of trends in private equitythe (“PE”) in Africa. data,

private equity firms concluded a record number of deals over the past two years, with 118 deals amounting to PE deals were reported in Africa between $15 billion, mainly in consumer and - 2015, totalling US$21.6bn financial services sectors. s below US$250mn in size have been stable “Instead of waiting for the handful of cent years, with the total annual deal value large, pan-African businesses to come to ese deals increasing slightly in 2015 relativeseeking market, firms are now actively 014. In 2015, there were fewer above to do a series of deals smaller deals with a 250mn in size compared with 2014, resulting view to combining these companies ower overall total value into deal a larger regional portfolio,” the Deal Drivers report stated.

These deals sectors that saw a notable increase in PE included Norfund AS and NorFinance’s values in 2015 relative to 2014 (albeit from

w base) were Commercial & Professional ces (Industrials), Health Care Equipment & & Services ces (Health Care) 18 and Softwarewww.bankerafrica.com rmation Technology) page 18-19 Markets 032.indd 18

6.2bn since 2010. Half of the funds were

TOTAL YEAR AND DEAL SIZEsize RANGE, $ BILLION Total VALUE valueOF ofPE PEDEALS dealsINinAFRICA, Africa,BYby year and deal range, US$bn

Selection of P

8.1

Total value of deals >$250mn

Portfolio Company

Total value of deals <$250mn

Azalaï Hotels Group

4.2 2.8 1.9

AFB Mauritius Cresta Paints

2.5

2.2

Orient Bank Limited

2010

2011

2012

2013

2014

Venezia Ice

2015

Source: Africa Private Equity Tracker 2016

12.22 stake in Kenya’s Equity Group million than in 2014. The Association ($257 million) and Helios Investment healthcare, and Number and value of PE deals in Africa,highlighted by region,industrials, 2010 – 2015 Partners’ 85 per cent stake in Egyptian information technology as high-growth payments startup Fawry Banking & sectors during the same time period.

Payment Technology ($82 million).

Africa Private Equity and Venture COMMODITIES % share ofKEPT deals, UP 15% Capital Association (AVCA) also The recent pressure on oil prices and the 2010 2015 9% recently released its own Private mining sector did not seem to impact Equity Tracker, which showed longer deals a great deal, as energy, mining and % share offor deal term trends in deals on the continent. utilities still accounted a value, majority of - 2015at 24 per cent of 25% there were 823 According25% to AVCA, M&A deals in2010 the year, private equity deals valued at $21.6 17% deal value and 17 per cent of deal volume, 7% to Mergermarket. Many of billion between 2010-2015. Overall, according African private equity funds raised these deals were led by local investors 4%period.1% such as Angola’s national oil company, $16.2 billion during the same AVCA said that deals below $250 Sonangol, and Nigerian companies Seplat million in size42% have been stable in Petroleum Development and Eroton. In recent years and even increased in 2015, fact, 62 per cent of overall deal flow came echoing the findings of Mergermarket. In from domestic investors, with the United 2015 there were fewer deals above $250 States, United Kingdom and the United 8%

Multi-region

7%

Number and

1% 24%

15%

28/03/2016 16:46

Total value of deals <$250mn

4.2 2.5

2013

2014

2015

Arab Emirates providing a majority of nd value of PE deals in Africa, by region, 2010 – 2015 the outside investor activity, particularly in healthcare.

Mining M&A also accelerated in share of deals, 2015 despite the%sector’s struggles 15% 2010which - 2015 perhaps 9% in many countries, accounted for the overall drop in deal value at the same time. % share of deal value,

5%

West Africa

AFB Mauritius

Financials

LeapFrog Investments

Multi-region

Cresta Paints

Materials

Adenia Partners

West Africa

Orient Bank Limited

Financials

8 miles

East Africa

Venezia Ice

Consumer Staples

Swicorp

North Africa

NUMBER BYsector, SECTOR, 2010-2015 NumberAND andVALUE valueOF ofPE PEDEALS deals IN in AFRICA, Africa, by 2010 - 2015

2010 - 2015

25%

17% OUTLOOK

Consumer Staples

17%

9%

Financials

16%

11%

Consumer Discretionary

14%

6%

Industrials

13%

Annual African Private Equity Data Tracker

AVCA called 7% 2015 a bumper year for Real private equity fundraising, meaning 9% Estate 4% 1% 2016 by extension could see lower that fundraising totals. It cited Africa’s 7% Materials positive demographic trends as a Total value of PE deals in Africa, by year and deal size range, US$bn Selection of PE deals announced in Africa in 2015 Health sign that private equity investment 7% Care will remain focused on consumer8.1 Portfolio Sector Investor(s) Total value of deals >$250mn over the medium term, Company Information 7%driven sectors 6% Total value of deals <$250mn Technology 1% infrastructure, though real estate and PCM Capital Partners Azalaï Hotels Consumer energy will also be top drivers. Despite Group Discretionary Utilities 5% depressed commodity prices and slower 4.2 24% LeapFrog Investments AFB Mauritius Financials economic growth, AVCA said that 15% Telecommunication 2.8 Cresta Paints Materials 3%Adenia Partners 2.5 many private equity investors in Africa 2.2 Services 1.9 have developed the requisite skills, Orient Bank Financials 8 miles South Africa Limited Energy 3% experience and knowledge to continue growing their portfolio companies.

Venezia Ice Consumer Staples Swicorp

i-region

2010

2011

2012

2013

2014

NUMBER AND VALUE OF PE DEALS IN AFRICA, Number and value of PE deals in Africa, by region, 2010 – 2015

BY REGION, 2010-2015

15

cker provides a “PE”) in Africa.

ca between

15%

25%

ve been stable ual deal value n 2015 relative deals above 2014, resulting

crease in PE 4 (albeit from ofessional Equipment & re & Services

% share of deals, 2010 - 2015

9%

% share of deal value, 2010 - 2015

25%

17%

1%

42%

Azalaï Hotels Group AFB Mauritius Cresta Paints Orient Bank Limited

INVESTOR(S)

Consumer Staples Consumer Discretionary Financials Financials Consumer Materials Discretionary Financials Industrials Consumer Staples

Multi-region

7%

1%

South Africa Source: Africa Private Equity Tracker 2016

1% West Africa

16% Multi-region West Africa 31% East Africa

10% North Africa

REGION

17%

9%

16%

11%

PCM Capital Partners

West Africa

LeapFrog Investments Adenia partners 8 miles Swicorp

Multi-region

14%West Africa East Africa

13%

North Africa

6% 4% 4%

FUND NAME

7%REGIONAL FOCUS

6%

PCM Capital Partners 7%Sub-Saharan Africa

2%

LeapFrog Investments

1%

REPORTED Materials

FINAL CLOSE

Mediterània Capital II

15%

Region

9% SELECTION OF PE FUNDS Estate THAT ANNOUNCED A FINAL CLOSE IN 2015

Health 990 Care African Development 725 Information Partners II Technology Helios Investors III 1,100

24%

funds were articular e Sub-Saharan n-African

SECTOR

Abraaj Africa Fund III

8%

2%

Number and value of PE deals in Africa, by sector, 2010 - 2015

PORTFOLIO COMPANY

Real

4%

6%

© 2016 AVCA | February 2016 NUMBER AND VALUE OF PE DEALS IN AFRICA, BY SECTOR, 2010-2015

Venecia Ice

7%

4%

2015

% share of deals, by number, 2010 - 2015

42%

4%

% share of deals, by value, 2010 - 2015

2012

PCM Capital Partners

% share of deals, by value, 2010 - 2015

2011

Consumer Discretionary

% share of deals, by number, 2010 - 2015

2.2

1.9

Azalaï Hotels Group

Moringa SICAR

Utilities 131

Adenia partners 8 miles

92 Telecommunication Services

Synergy Private Equity Fund

FUND SECTOR

Above 100 Energy

Swicorp Generalist

mbers

Pan-African

6% Pan-African

5%North Africa

16%

Sub-Saharan Africa

3%& Latin America West Africa

3%

31% 10%

© 2016 AVCA | February 2016 www.bankerafrica.com

page 18-19 Markets 032.indd 19

19 28/03/2016 16:46

COUNTRY FOCUS SOUTH AFRICA

Between a rock and a slow economy Several factors came together to make 2015 a difficult year in South African banking, but some institutions fared better than others

20

www.bankerafrica.com

page 20-22 Country Focus-South Africa_032.indd 20

30/03/2016 10:31

B

Tourism to famous spots like Table Mountain in Cape Town (pictured) is one of the few growth drivers in South Africa right now (CREDIT: DELPIXEL/SHUTTERSTOCK).

e twe e n the drop in commodities prices, the rand’s decline and the energetic political climate, all against the backdrop of an increasingly stagnant economy—the South African banking sector had a tough year in 2015.

Each of the major ratings agencies moved the sovereign another step closer to losing its investment grade, bringing each of the major banks down with it. The ratings question could have big ramifications for foreign investment into South Africa and has definitely dealt a blow to banker confidence.

On 12 March, Moody’s Investor Services placed on review for downgrade the Baa2 long-term deposit and senior debt ratings of the ‘Big Five’ South African banks: Standard Bank of South Africa, FirstRand Bank Limited, ABSA Bank Limited, Nedbank Limited, and Investec Bank Ltd. The rating agency has also placed on review for downgrade Standard Bank Group's Baa3 issuer rating.

In a statement, Moody’s said that the decision reflect its 8 March 2016 decision to place South Africa’s sovereign rating of Baa2 on review for downgrade.

Just over a week beforehand, Standard & Poor’s Rating Services had released a statement saying that it would not downgrade South Africa’s ratings

NET PROFIT bank

NP 2015

NP $ change

NP % change

ABSA

989,072

-235835.2324

-19%

Capitec Bank

164,606

-11851.93343

-7%

First National Bank South Africa

685,814

-112662.077

-14%

Investec

200,845

14649.4386

8%

NedBank

527,154

-169823.6872

-24%

Rand Merchant Bank South Africa

498,838

-49962.73273

-9%

12,391

-1791.678047

-13%

1,505,888

-61185.75592

-4%

Sasfin Bank Standard Bank Africa Group - South Africa Source: CPI Financial

yet, but that its position is vulnerable considering economic conditions and revenue shortfalls.

Each of the ‘Big Five’ banks have significant sovereign debt securities that link their creditworthiness to the sovereign—their collective exposure averages about 144 per cent of their capital bases according to South Africa Reserve Bank’s December 2015 report—so the decision to place them on review came as no surprise. But Moody’s noted that even without these exposures, the difficult economic climate of the past year made it hard for banks to flourish. As you can see by the charts we compiled at CPI Financial (pg. 22), this difficult operating environment translated into losses across assets, liabilities, revenue and net profit for nearly every financial institution in the country, from the ‘Big Five’ to smaller private bank Sasfin.

Moody’s forecasted that South Africa’s GDP growth will reach only 0.5 per cent in 2016, a lower forecast than the IMF or others who place it around 0.9 per cent.

It expects growth to recover to 1.5 per cent in 2017 but still be far below the government’s targets.

“These challenging economic conditions, combined with declining commodity prices, increasing interest rates and high household indebtedness, will lead to elevated credit risks and potentially higher impairments for banks, exerting pressure on their earnings and challenging the resilient performance they have featured so far,” Moody’s said.

According to their data, the operating expenses (11 per cent) of Standard Bank of South Africa (SBSA) grew more than total revenue (seven per cent) though net profit also rose by seven per cent in the year. As a result the bank's cost-to-income increased to cont. overleaf

www.bankerafrica.com

page 20-22 Country Focus-South Africa_032.indd 21

21 30/03/2016 10:31

COUNTRY FOCUS SOUTH AFRICA

cont. from page 21

57.6 per cent in December 2015 from 56.2 per cent in December 2014.

FirstRand, meanwhile, reported eight per cent earnings growth yearon-year from the first six months of 2014 to H1 2015 (the bank’s fiscal year closes on 30 June). For the purposes of our data, we took a look the South Africa-specific activity of FirstRand Group’s largest banking institutions, Rand Merchant Bank (RMB) and First National Bank (FNB), separately.

According to our research, FNB’s net profit dropped 14 per cent yearon-year, while RMB’s fell nine per cent. These of course do not take into consideration operations outside of South Africa, which for both larger entities are quite significant.

ABSA also had a difficult year with revenue and net profit drops of 21 per cent and 19 per cent, respectively.

However Barclays Africa Group as a whole reported solid eight per cent profit before tax growth and 28 per cent profit before tax growth for entities outside of South Africa. Most notably, London-based Barclays Bank Plc announced in February 2016 its intention to withdraw from its 62.3 per cent stake in the Africa Group, which puts ABSA in an interesting place for the future—CEO Maria Ramos has assured customers and investors alike that the banks stays committed.

Comparatively, private banking institutions fared much better than their peers in the year. Investec had net profit growth of eight per cent yearon-year according to our numbers, and a relatively low non-performing loan rate of 1.8 per cent as of September 2015, according to Moody’s. Yet this positive performance may come under pressures—in Moody’s statement on the review for downgrade, it noted that recent declines in equity prices recently could have some negative impact on the bank’s high net worth client base.

22

TOP 5 BANKS BY ASSETS (USD, Top '000)5 Banks By Assets Sas n Bank

21,362,638

Rand Merchant Bank South Africa 3,461,910

Capitec Bank

2,345,096

Investec

697,700

19,264,746

REVENUE YOY (USD, '000)

First National Bank South Africa

Revenue YOY 7,416,732 6,026,249

Standard Bank

5,479,085 4,322,983

ABSA 2,899,714 2,267,211

Nedbank

2,709,795 2,258,479

First National Bank 872,055 745,152

Capitec Revenue 2014

LIABILITIES (USD, '000)

Revenue 2015

Liabilities -14% -10823342.01 67,159,597

-15% -8985159.36 51,417,023

ABSA Capitec Bank

-13% -416363.8826 2,719,416

First National Bank South Africa Investec NedBank

-19% -4535279.278

-19%

19,507,069

-4169428.933 18,334,425

ASSETS (USD, '000) -4,896,823 21,362,638

Investec -538,347 3,461,910

Capitec Bank

Assets 2015

-561,806

Assets $ change 2,345,096

Rand Merchant Bank South Africa -9,684 Sas n Bank

697,700

Source: CPI Financial

www.bankerafrica.com

page 20-22 Country Focus-South Africa_032.indd 22

30/03/2016 10:31

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28/03/2016 18:16

COUNTRY FOCUS SOUTH AFRICA

Innovating through the slow economy Despite challenging economic conditions, there are opportunities to grow into new customer segments, says Jacques Celliers, CEO of First National Bank (FNB)

24

www.bankerafrica.com

page 24-25 Country Focus-South Africa_032.indd 24

28/03/2016 16:50

From a banking perspective, there are clear opportunities to supply innovative and low-cost services and attract a smaller number, but higher value, customer.

–

H

ow has the economic slowdown, and more recently, the rand’s decline, impacted FNB?

FNB, while being well-positioned for the economic slowdown given the appropriate measures taken over the last few years to both reduce risks in its credit portfolios as well as to manage costs very carefully, will experience pressures in terms of growth rates which are off cyclically high levels.

Based on the above, do you foresee a significant shift in growth projections or strategy in this year?

FNB continues to defend its proud return profiles through investing in its primary bank relationship strategy and while 2016 is forecasted to be a year of lower economic growth, we are seeing sustained growth in our middle and upper income segments, as well as from our business segments.

What are the biggest challenges you see the South African banking sector facing right now?

In addition to the subdued economic conditions with high inflation and volatile exchange rates resulting in lower confidence all round, banks are

Jacques Celliers

challenged to satisfy the ever increasing regulatory requirements.

On the other hand, what are the biggest opportunities both in terms of banks’ businesses and growth sectors in the economy?

From a banking perspective, there are clear opportunities to supply innovative and low-cost services and attract a smaller number, but higher value, customer who is looking for a range of services from their bank. FNB sees increased opportunity to further widen the value propositions into broader financial services leveraging its strong and innovative distribution and technology platforms into its quality client base.

The weaker local currency additionally opens up significant opportunities for our customers in the export, tourism and property sectors amongst others that offer significant value.

How have newer banking/ transaction technologies changed the retail space changed in South Africa? Would you say it differs markedly from the ‘Rest of Africa’ in any sense?

Banks, not only in South Africa but also in the broader continent, have been aggressive at adopting analytical and technology-led strategies leveraging mobile in

very innovative ways. Increasingly, strategies leveraging big data are being expanded beyond traditional credit, collections and fraud models and banks all over are improving omni-channel activities. While certain activities will no longer be done in traditional branches, FNB continues to appreciate the leading role its powerful point-of-presence network plays in sales, education and service.

In other African economies we see very different banking patterns, with banks challenged to support both a large reliance on traditional cheque and cash while at the same time supporting mobile payments, cards and agency-led distribution channels.

What do you think needs to be done from a regulatory perspective to improve business sentiment/ investment opportunities?

Clear leadership is needed at all levels of society to minimise disruptions and to strive to deliver sufficient policy certainty that will allow for continuous investment into sustainable initiatives which ultimately aims to create more jobs and reduce the unacceptably high unemployment levels. It is also important to reduce opportunities for regulatory arbitrage across industries to minimise impacts of unintended consequences.

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POLICY SPOTLIGHT

A middle road to recovery Will the proposed consolidation measures in South Africa’s 2016 Budget be enough to put the economy back on track?

Parliament is hammering out the future of South Africa’s budget (CREDIT: FELIX LIPOV/SHUTTERSTOCK)

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inance Minister Pravin Gordhan’s 24 February presentation of the 2016 Budget may have been one of the most anticipated budget speeches in recent memory. The rand’s plummet at the end of 2015, along with the finance minister shuffle that saw Gordhan reinstalled after Nhlanhla Nene was removed and David van Rooyen had a brief run, both had the country’s sovereign rating hanging onto investment grade by a thread.

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Gordhan, whose first term as Finance Minister was from 2009-2014 in what was largely considered a successful and prosperous term. But the widespread reaction to his 2016 Budget Speech was that it was not enough, either on consolidation or taxation. Though Gordhan acknowledged the need for consolidation, he seemed to keep in mind that too much austerity could further strain a stagnant economy.

“We cannot spend money we do not have. We cannot borrow beyond our

ability to repay. Until we can ignite growth and generate more revenue, we have to be tough on ourselves,” he said.

Gordhan said that in the creation of the budget, the Ministry reached out to over 1,500 South Africans for ‘budget pointers’ to assess the strengths and weaknesses of the Ministry.

“On what we do well, South Africans have very clear views—tax administration, and paying social grants,” he said. “What we should stop

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doing—corruption and waste [and] bailing out state entities.”

In order to achieve this, Gordhan laid out an accelerated fiscal consolidation plan that would reduce the budget deficit to 2.4 per cent by 2018-19 and cut the expenditure ceiling by ZAR 25 billion over the next three years. Proposed taxes, mainly those on the wealthy, would also increase revenue by ZAR 18 billion in 2016-17 and a further ZAR 15 billion in the subsequent two years.

At the same time, Gordhan said that ZAR 16 billion will be allocated to higher education over the next three years, funded through reprioritisation of expenditure plans, and a further ZAR 11.5 billion will be set aside for social grant allocations.

Gordhan dwelled significantly on the country’s National Development Plan (NDP), stressing the importance of inclusive growth through education, infrastructure investment and employment opportunities, as well as a mixed economy in which public and private actors could play more even roles.

REACTIONS TO THE BUDGET

The really encouraging news is the achievement of a primary fiscal surplus for the first time since the global financial crisis.

— Razia Khan, Chief Economist for Africa at Standard Chartered Bank

Though these actions are promising, several investors felt the pace of consolidation is not fast enough considering the dire downturn the economy and currency took towards the end of last year. While consolidation plans—mostly reliant on the whittling down of a bloated public sector—are more accelerated than in the October 2015 Medium-Term Budget Policy Statement, they also happen after the rand fell by more than 26 per cent in the second half of 2015 and dropped dramatically in December alone.

However Standard & Poor’s Rating Service (S&P) said in a statement the day after the Budget Speech that consolidation plans are in line with its projections, and no further credit ratings action would be made at the time, though it did note that the budget

“lacks significant policy announcements that [S&P] think[s] would immediately spur GDP growth”.

Razia Khan, Chief Economist for Africa at Standard Chartered Bank, said that the budget announcement was ‘positive news’ despite the fact that there “were no headline grabbing measures, and there is still no concrete safeguard against the potential loss of South Africa’s investment grade status.”

“The big takeaway from the budget was the faster pace of fiscal consolidation that is planned—not so much in the current fiscal year, where there is a very slight widening of the budget deficit, but in the years that follow. This is no easy achievement, given the halving of expected real GDP growth in 2016,” Khan said.

“The really encouraging news is the achievement of a primary fiscal surplus for the first time since the global financial crisis. On a consolidated budget basis, this is expected from [fiscal year] 2017, with the primary surplus as a per cent of GDP rising over the medium-term,” she continued. “This is significant and deserves highlighting. It means that despite the challenges, South Africa’s net borrowing requirement is expected to fall over the medium-term, and debt ratios will stabilise earlier than previously thought…and at a modestly higher level.”

Gordhan’s concern that austere budget measures could further disrupt the already fragile economy is key. He cited numbers projecting just .9 per cent GDP growth in 2016, down from just under two per cent the year prior and a far cry from previous projections of about 2.5 per cent for 2016. Gordhan’s budget relies heavily on infrastructure investment and social programmes to reinvigorate the economy.

“We have also been mindful of the need to moderate the impact of tax increases on households and firms in the present economic context,” cont. overleaf

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POLICY SPOTLIGHT

cont. from page 27

he said as explanation for relatively moderate tax increases. The tax proposals include a personal income tax relief of ZAR 5.5 billion, partially compensating for inflation, focused mainly on lower- and middle-income earners; there is also an increase in the monthly medical tax credit allowances and increases to fuel and other levies.

However the biggest tax increases target the wealthy—the transfer duty rate on properties above ZAR 10 million, for instance, will increase from 11 per cent to 13 per cent, and measures are proposed to strengthen the estate duty and donations tax.

Zuma and the future

THE ROAD AHEAD Immediately after tabling the budget in Parliament on 24 February, Gordhan embarked on a media tour and investor roadshow to garner support for the measures and possibly even protect South Africa from further ratings downgrade—the country is currently on review for downgrade from Moody’s and at risk with the other agencies.

In a media briefing on 25 February, Gordhan acknowledged that it would be a challenging process.

“It’s a tough budget. We are finding ourselves in a very difficult global economic environment with lots of doubt on whether the developed world will continue to grow,” he said. “We have our own internal difficulties as South Africa. We’ve been growing too slowly. Our unemployment levels are too high, poverty and inequality levels are also high…Government has, for the last six years or so, been carrying the substantial burden of investing in infrastructure, for example…At the same time, we’ve borrowed a lot since 2009 in order to sustain, in particular, our social services and invest in infrastructure and the economy more generally. We haven’t grown at the same level as we borrowed. This means we have to tighten our belts, tax a little

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President Jacob Zuma answers questions at Parliament (CREDIT: GOVERNMENTZA/FLICKR)

Tensions mounted towards the end of last year as the economy worsened and President Jacob Zuma drew criticism for the Finance Minister shake-up and ensuing currency crisis. In his State of the Union address early in 2016, Zuma attempted to address some of these concerns and lay out a vision for recovery—to a mixed reception.

It started with a delay as several opposition Parliament members interrupted the speech and Zuma momentarily stepped out. Eventually, after several members of the Economic Freedom Fighters (EFF) party left, the speech continued.

Though many have accused Zuma’s Government and policies for South Africa’s economic slowdown, he pointed to the global landscape, citing the financial crisis of 2008, continually muted

global growth, low mineral prices and slowdowns in other BRICS economies all as factors in the country’s struggle.

“Because our economy is relatively small and open, it is affected by all of these developments. Our economy is also affected by domestic factors such as the electricity constraints and industrial relations which are sometimes unstable,” he said, perhaps underplaying the impact of widespread load shedding and several mining strikes.

“Importantly, our country seems to be at risk of losing its investment grade status from ratings agencies.

If that happens, it will become more expensive for us to borrow money from abroad to finance our programmes of building a better life for all, especially the poor,” he said.

“The situation requires an effective turnaround plan from us. It is about

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doing things differently and also acting on what may not have been acted upon quickly before.”

Zuma laid out the importance of remaining an attractive investment destination and alluded to plans for a ‘one-stop’ shop for investment and foreign business administration and the eventual removal of regulatory red tape on foreign players.

Responses to Zuma’s speech were measured. Kristin Lindow, Moody’s Senior Vice President and Lead Sovereign Analyst for South Africa, said that while the President had proposed setting up a panel to address the economy’s malaise, the 2016 Budget plan would be far more important to the market’s confidence.

“President Zuma’s State of the Nation speech acknowledged the country’s deep economic challenges and provided hints of future budget savings—notably regarding privatisation of stateowned companies and the unification of the two capitals,” Lindow said.

Mamello Matikinca, FNB Economist, said that, “President Zuma’s State of the Nation Address was full of promise and good intention, but as the saying goes actions speak louder than words.

The speech emphasised the need to address ailing economic growth, improve business sentiment and coordination between business and government. It appears that the government is eager to address these issues and avoid a sovereign downgrade, but at the same time remain very accommodative.”

Matikinca added that FNB still expects the sovereign to be downgraded at some point.

Finance Minister Pravin Gordhan presents the 2016 Budget (Credit: GovernmentZA/Flickr)

bit more without hurting the economy and cut expenditure within government as well.”

A significant factor in encouraging investment growth will be reducing investment bottlenecks and soothing investor concerns. Parliament is reportedly reviewing over 80 bills and plans to address regulatory constraints and bottleneck-causing limitations such as visa regulations and conflict resolution. On top of this, the Department of Trade and Industry is forming a new investment promotion agency to streamline administrative procedures, while authorities are looking at special economic zones to encourage exports.

“The problem is that we still do not know what is going to drive growth in South Africa. In the context of an economy where per capita incomes are falling, and the medium-term growth outlook remains the weakest since 1997 when MTEF planning began, this is still a big worry. South Africa’s retention of its investment grade rating remains a difficult call,” Khan said in her budget response.

President Zuma’s State of the Nation Address was full of promise and good intention, but as the saying goes, actions speak louder than words.

—M amello Matikinca, FNB Economist

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CASE STUDY

The ‘almost’ branchless future Moza Banco achieved aggressive growth throughout the country in large part through a significant digital banking push, says Ibraimo Ibraimo, CEO of Moza Banco Financial inclusion in Mozambique will take a combination of branches, agency and digital technology (CREDIT: EVERYTHING POSSIBLE/SHUTTERSTOCK).

I

f you said just a few years ago that Moza Banco would be one of the most recognisable retail banks on the ground in Mozambique, not many would have believed you. But when Moza Banco’s growth strategy made retail banking a central focus, the bank embarked on digital transition and branch expansion that transformed the brand and its customers’ experiences.

Ibraimo Ibraimo, CEO of Moza Banco gave Banker Africa a peek into that process.

What was most important tech aspect for you in transitioning into a fullyfledged retail bank?

There isn’t a single aspect, but a sum of a few.

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To start, a solid infrastructure— systems, communications, security— well-designed and scalable, that allows you to configure and set up a new branch from scratch in a couple of days and that guaranties you high availability; [this] is fundamental.

On the other hand, [it is also important to implement] a multichannel application architecture that enables you to launch products in good time to market, to deploy them to all your channels at the same time and also to create internal efficiency that could cope with the large increase on your customer base.

Naturally, the most important of all is the quality of your staff. Without them it would be almost impossible to change as we did in such a short period of time, opening branch after branch, launching

dozens of new internal and external applications, hundreds of products, and launching new and innovative channels, all of this in just a couple of years.

Fortunately we do have an amazing team of bright young Mozambicans.

How has digital banking technology changed the Mozambican customers’ experience?

The pace of change over the last years has snuck up on us faster than expected, if a couple of years ago a client had to wait a long time at a queue or had to travel for miles for the nearest branch to pay a bill, a service or to make a transfer, he can now do it at the touch of a button from the comfort of its home.

The race to deliver the best digital client experience is becoming intense,

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clients are expecting you to deliver your products and services across your channels, at the same time, and with the same simplicity and ease of experience, especially the young customers. The importance of ‘word of mouth’ has also been replaced, clients have access to more information than ever before, and they now communicate with more people and more frequently, so a bad digital experience can really harm your business.

In the past five years, Sub Saharan Africa has been the fastest-growing region in the world for mobile telephony. Mozambique is not an exception, so today through different applications or channels [such as] internet banking, mobile banking, USSD and e-wallets, you can have your bank at the distance of a click, 24/7.

This is also important in a country where financial inclusion, and the banked, are fundamental. For the majority of the unbanked population, financial inclusion starts here since some of the services are also available for non-clients.

On the other hand the ‘Internet of Things’, combined with social media analysis and physical payments data is making massive amounts of data about consumers widely available, so we are now knowing our customers better, and we can evolve to proactively offer ‘tailor made’ products to our clients, based on their behaviour.

How have these innovations significantly changed the ‘behind the scenes’ experience of Moza Banco employees’ communication, efficiency and even risk management?

In fact, banking in the digital requires a profound rethink, or reset, in the way banking staff reacts to client’s expectations and needs, and how it manages its risk, so our expansion and innovation depended on quickly

It’s important to enhance multichannel application, says Ibraimo Ibraimo.

Banking in the digital requires a profound rethink, or reset, in the way banking staff reacts to client’s expectations and needs.

Ibraimo Ibraimo, CEO of Moza Banco

—

training a work force of enthusiastic young Mozambicans. That would have been next to impossible in the time frame envisioned and in a big country with developing physical infrastructure.

But the ability to remotely collaborate, share knowledge, conduct meetings, and offer training to colleagues was a major boon.

Part of your retail transformation was strong branch expansion. Do you see branches continuing to be important in digital banking and how will they change?

Branchless banking has been a buzzword for many years now, especially over the last few years with the huge development of digital banking.

Banks with brick and mortar have been around for centuries, and it will be extremely difficult to erase that association from the human mindset.

For some of the clients, even knowing in advance that the physical experience of doing a transaction in a branch is much worse than the digital experience the exact same transaction, they will still continue to go the branch.

Is branchless banking the future? It is in my opinion [that it will be] at least an ‘almost’ branchless banking.

In Mozambique we are still on another route—we need to financially include the majority of the population, so we need to be next to them, either through branches, through agents that we launched last year, or by other channels. The number of branches per 1,000 adults in Mozambique is still very low, compared to more developed countries. Comparing, for example, to our South African neighbours, in order to have the same ratio of branches the banking system would need to have around 2,000-2,500 branches.

We have 600 across Mozambique, so we still need to continue opening branches across all the districts in Mozambique.

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CASE STUDY

Nurturing financial security Though smallholder farmers account for a significant part of many countries’ populations, their financial inclusion is minimal and their risky heavy A farmer surveys his millet, a common smallholder crop (CREDIT: JOHN WOLLWERTH/SHUTTERSTOCK).

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here are an estimated 500 million smallholder households of approximately two billion people around the world. These small-scale farming families make up a significant portion of the world’s poor who live on less than two dollars a day. In Africa, where financial inclusion rates are still low due oftentimes to difficulties reaching rural farmers, an understanding of their financial needs is key.

Consultative Group to Assist the Poor (CGAP) a World Bank-supported partnership between 34 organisations that works towards financial inclusion, carried out a year-long study documenting the income, expenses, and agricultural production of 270 smallholder families in Mozambique and Tanzania as well as Pakistan. Approximately 500,000 data points shed light on how these households manage their money and face challenges from climate shocks to unexpected health issues.

CGAP’s Financial Diaries with Smallholder Households also provides recommendations on the types of

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financial services that could improve smallholders’ financial security.

“Financial service providers and others working with small-scale farming families need to know how diverse this market is. Insights from the Smallholder Diaries can help them tailor solutions to the various profiles of smallholder households,” Jamie Anderson, Financial Sector Specialist at CGAP, said.

Based on its research, the report suggested financial tools aimed at improving agricultural production and crop storage in the Mozambique sample, which was comprised of mainly noncommercial smallholders; and diversified savings instruments for the households in Tanzania, who sold more agricultural products than they consumed.

Despite the rise of banking technologies and more inclusive tools like mobile money, only 19 per cent of the smallholders surveyed in Tanzania used mobile money; none reported using it in Mozambique or Pakistan.

The study also found that weatherrelated and health shocks are some of the leading risks to smallholder farmers,

but that there is very little response capacity for them. In Tanzania, 72 per cent of households could do nothing in response to weather damage, and in Mozambique, for instance, 70 per cent of the families in the study experienced the death of a household member in the past five years. Then there were more garden variety risks like pest infestation, to which 61 per cent of Mozambican farmers reported losing crops.

Even with disasters aside, market fluctuations in produce prices can have a huge impact on smallholder farmers, who often sell their entire stock towards a relatively small income.

Several tech startups and agricultural funds, such as Africa Exchange Holdings, look to manage these risks with warehouse and market support for farmers—AFEX estimated that 69 per cent of Africans work in agriculture, accounting for 32 per cent of GDP on average. More personalised financial products that take agricultural risks into consideration can add further security to farmers and boost overall financial inclusion.

www.bankerafrica.com

28/03/2016 17:15

THE AUTHORITATIVE VOICE OF ISLAMIC FINANCE Essential reading for an expanding industry - Islamic Business & Finance is the world’s most thought-provoking monthly magazine dedicated to the development of Islamic finance globally.

Islamic Business & Finance is a controlled circulation publication. You may apply to subscribe via our website or by emailing subscriptions@cpifinancial.net

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 IB&F Dec 2015 Issue 92-94.indd 1

10/12/2015 09:41

TRAILBLAZERS

Shining a light on cost and earth-saving energy Astonfield Renewables Resources is bringing a cost-saving solar proposition to corporates in East Africa, and the Kenyan market’s appetite is growing, says Co-Chairman Ameet Shah Solar power can be cheaper and more reliable than the grid according to Astonfield (CREDIT: MATTEO FESTI/SHUTTERSTOCK).

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hat if companies took power production into their own hands?

That is what Astonfield Renewable Resources, an India-originated renewable energy provider, is helping Kenyan companies to achieve. With the help of global technical partners including Schneider Electric, juwi Group and Solar Frontier, Astonfield establishes solar power solutions that can replace up to 40 per cent of mid-sized corporates’ conventional power grid usage.

Since its founding in India in 2005, Astonfield made headway in India with its first five megawatt (MW) plant in Rajasthan and later 275 MW worth of projects throughout the country. But Ameet Shah, co-chairman, longed to come back to the continent he called home—Africa.

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Kenya was a natural choice for entry, he said. Besides facilitating government policies, Kenya’s high existing utility tariff and current price per kilowatt hour (kWh) stands around 12 to 15 cents, making even a slight transition to a renewable source such as solar—which Shah put at about six to eight cents kWh—a costsaving choice for corporates.

“Probably the most important [incentive] is that the Kenyan banking system has several tens of millions of dollars established as bilateral credit lines for renewable energy available to corporates,” Shah said. “So the confluence of the amazing regulatory environment and the amazing fiscal and tax policies from the government, lending availability in the banking system and our ability to deliver solutions to corporates, was really the process of market entry.”

A big part of approaching corporates to take on solar panels is explaining how renewable energy will integrate with their existing grid, taking up a certain percentage of power generation, but not all.

“It’s really giving them that ‘aha’ moment that they can replace 20 or 40 per cent of their bill with solar and… the savings are essentially paying for the system from day one,” Shah said.

Astonfield is still young in the market, but Shah promises that the second half of 2016 will see a lot of activity setting the standard for solar energy adoption.

Astonfield currently has about 85 MW under development in Sub Saharan Africa, with five MW expected to be commissioned this year and one 40 MW project to achieve financial closure within the next 12 months. Following that, Shah hopes Astonfield will be in

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Ameet Shah, Co-Chairman of Astonfield Renewable Resources

a position to move on the second 40 MW project on the same site, to achieve greater economies of scale.

The bulk of this in Kenya, where Shah feels the company has a good handle on costs and the benefits of solar energy are clear. In nearby markets such as Tanzania, energy costs are lower but the grid is less reliable, offering another motivator for renewable energy that could be explored. But even there, the banking industry may not be as primed to support corporates pursuing renewable energy, which is a big incentive for corporates looking to take the leap.

A ‘handful’ of Kenyan banks have a long interest in energy and have secured bilateral credit lines for these renewable energy projects, Shah said. Most of this capital had historically moved into the hydro or biomass sector, until Astonfield began working with banks and corporates to introduce their product.

The companies exploring renewable energy were often solid corporates with strong track records on paying their electricity bill and maintaining creditworthiness, that were just looking at a smart cost-saving measure. “[Banks] looked at that and said this is a very interesting opportunity to lend towards, because the credit risk is minimal and the value proposition to clients is very compelling. Some banks have seen this as essentially a ‘Trojan horse’ for breaking into the small- and medium-sized enterprise sector with innovative products that can break the current relationships, giving them a more disruptive profile to reach new clients,” Shah said.

“Kenya traditionally has a very conservative lending system which is asset-based lending, and in a market where there are 44 banks, probably less than seven or eight really understand

energy,” he continued. “I believe that there are a few outside of that seven or eight that are looking at ‘how do we lend against cash flows rather than asset-based lending?’ and this product fits in really nicely as a step in the right direction. This is sort of new and unique to the banking system, but those who get it have really stepped up and we’re thrilled about that.”

A huge part of the shift, Shah said, has been support from development finance institutions (DFIs) that had helped create these bilateral credit programmes targeting one of the most overlooked areas of energy usage. After all, the COP21 agreements in September 2015 put hefty objectives on each country to achieve more sustainable and environmentally friendly energy usage—but a lot of the focus is misdirected, Shah argued. While much of the global attention is on emerging economies and how they might use energy more sustainably, it’s not been

Some banks have seen [renewable energy] as essentially a ‘Trojan horse’ for breaking into the small- and medium-sized enterprise sector with innovative products.

— Ameet Shah

on the players in those countries that use it the most—the corporates.

“If we were to shift that huge attention towards providing local banks with bilateral credit support, you’d see a greater traction in reducing carbon footprints in Africa, because it’s really the corporates who need the credit to deploy renewables and reduce the carbon footprint,” Shah said.

www.bankerafrica.com

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SECTOR FOCUS ISLAMIC BANKING

A path for Islamic finance software Path Solutions, a veteran of the Shari’ah-compliant software solutions market, is driving new momentum in the sector’s African growth

B

anker Africa had the opportunity to interview Mohammed Kateeb, Group Chairman & CEO of Path Solutions, on the Shari’ah-compliant banking software provider’s significant progress in research and development (R&D), building innovative Islamic banking applications and expanding into new geographies.

H o w h a s Pa t h S o l u t i o n s developed as a business over the past few years?

Mohammed Kateeb, Group Chairman & CEO of Path Solutions

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Path Solutions was originally incorporated in 1992 initially to provide software services to different industries.

A few years later, the management decided to launch a diverse portfolio of pioneering Shari’ah-compliant software solutions and services for the Islamic finance industry specifically.

The year 2000 marked the beginning of Path Solutions’ product line-up, i.e. the launch of Path Solutions’ fully integrated and yet modularised Islamic banking solution for Islamic banks and financial institutions. The product line had been expanded to include Path Solutions’ famed iMAL, an integrated core banking system reflecting an extensive range of Islamic business practices.

Today, Path Solutions has established itself as a global provider of cuttingedge software solutions and services to the Islamic financial services industry,

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serving the world’s leading Islamic financial institutions. We develop, manage and supply Islamic and investment software solutions resulting in a ‘trusted’ system that guarantees quality of service and reliability.

As Islamic finance grows in popularity, how does Path Solutions respond in terms of technological innovation?

Path Solutions is the only IT vendor that is 100 per cent focused on the Islamic financial services segment, providing a broad, deep spectrum of integrated solutions and services that cover the entire range of Islamic banking; retail and corporate banking, investment and financing, treasury, asset management, risk management, and regulatory reporting in GCC and global capital markets.

The company’s core banking system is also cloud ready and deployable on a fully scalable, multi-server n-tier architecture. It includes out-of-the-box, industry best practice processes that further support rapid implementation, team knowledge transfer and sustainable business processes.

Since technological innovation is the engine that sustains long-term business growth, Path Solutions constantly researches and incorporates the latest innovations in areas such as mobility, analytics and cloud computing, to ensure that it remains a pioneer and first mover in the Islamic financial services segment.

Staying on top of what’s happening in your industry can help keep you ahead of the curve, which is the reason why we annually invest around 25 per cent in R&D, significantly more than our peers, with a dedicated team of over 300 software engineers creating high value enterprise software solutions to the Islamic financial services marketplace.

What sets Path Solutions apart from other IT vendors?

We’ve gone through a fairly concentrated journey in terms of technology innovations to become a leading Islamic banking software company worldwide.

So, it’s all about creating amazing software solutions that could create incredible and tremendous value for

The African market represents a growth opportunity for Path Solutions, so we’ve decided to pursue the market more intently.

- Mohammed Kateeb, Group Chairman & CEO of Path Solutions our clients, in a manner that they are truly Shari’ah-compliant, easily deployable, easy to maintain, and easy to upgrade as you go from one version to another. Our suite of Islamic software solutions enables our clients to serve their customers with total transparency and professional confidence.

H o w d o e s Pa t h S o l u t i o n s ensure its software system is Shari’ah-compliant?

Path Solutions pioneered Islamic banking technologies for more than 24 years. Consistently ranked as the first Islamic core banking solution worldwide; iMAL is architected from the ground up around Shari’ah guidelines and truly geared to address country and region-specific Islamic banking requirements.

Path Solutions is the only IT company globally that has sought the AAOIFI certification for its end-to-end software system in 2008, to ensure its compliance with the Islamic law.

In 2014, following a rigorous and phased approach project that entailed examination sessions with unprecedented collaboration between Path Solutions and Deloitte’s Islamic finance and Shari’ah professionals, the Deloitte Islamic Finance Knowledge Center has reported no exceptions on the compliance of the company’s Islamic core banking system with Shari’ah principles, and the accounting standards issued by AAOIFI.

What is in the pipeline for Path Solutions?

The pipeline for Path Solutions’ software applications is quite satisfactory, despite delays on a number of large potential clients. Our biggest pipeline lies now in Africa; it is where we have signed our major contracts last year. The African market represents a growth opportunity for Path Solutions, so we’ve decided to pursue the market more intently.

Where do you see Path Solutions five years from now?

As the world is being dramatically reshaped by technology, I see Path Solutions as the dominant player in the Islamic finance segment, providing next-generation software solutions and services to the world’s leading Islamic financial institutions.

Nonetheless, in the coming years we’ve got to be agile, go to growth areas and expand. Addressing growth where growth is, being part of the client value chain, and expanding at the speed of light; accurately forecasting new trends, as well as which trends are here to stay and which will be gone tomorrow can give us a huge leg up on the competition.

Let’s face it—some years are going to be better than others, because of political and economic conditions. This can be key in determining when and where to focus. Keeping up with changes in our sector is crucial to maintaining that competitive edge.

www.bankerafrica.com

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SECTOR FOCUS ISLAMIC BANKING

Inclusion and innovation The International Forum on Islamic Finance (IFIF) gathered powerhouses from across the global Islamic finance industry in Khartoum, Sudan

From (L-R) Badr El-Din Mahmoud Abbas, Sudan Minister of Finance and National Economy; Abdelrahman Hassan Abdelrahman Hashim, Governor of the Central Bank of Sudan; and Bakri Hassan Salih, First Vice President of Sudan, discuss the Islamic economy.

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s Africa’s leader in Islamic finance, made sense as Sudan the setting for the International Forum on Islamic Finance (IFIF) that gathered more than 200 leaders in the industry.

The Forum focused on two key areas for spurring economic growth in Africa—innovation and inclusion.

Besides Sudan’s Central Bank Governor, Minister of Finance and Vice President, executives from the country’s largest financial institution,

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Bank of Khartoum, as well as leaders from EY, PricewaterhouseCoopers and the United Nations Development Programme spoke on Islamic finance markets, microfinance and fintech.

The Sudan Islamic Finance report was also launched at the event. Produced by the Islamic Research and Training Institute (IRTI) and the General Council for Islamic Banks and Financial Institutions (CIBAFI), in collaboration with the Bank of Khartoum. The report provided substantive due diligence on

the opportunities for Islamic financial and non-financial services in Sudan.

“Industries and markets are being transformed by a growing shared technology infrastructure. Indeed, Africa is emerging as an inspiring hub of innovation for social media in the banking sector, enabling unbanked individuals in Africa to access risk averse financing through Islamic banking,” said Dr. Anindya Ghose, Professor at NYU Stern School of Business.

Delivering keynote addresses to a packed audience were Fadi Al Faqih, CEO of Bank of Khartoum; Musaed Mohammed Ahmed, Head of Sudan’s Banks Union; Abdelrahman Hassan Abdelrahman Hashim, Governor of the Central Bank of Sudan; Badr El-Din Mahmoud Abbas, Minister of Finance and National Economy of the Republic of the Sudan; and Bakri Hassan Salih, First Vice President of the Republic of the Sudan.

Though Sudan is one of the only completely Shari’ah-compliant banking systems in the word, a growing number of African countries have dual banking systems with distinct regulatory frameworks for Islamic banking. The sector has been increasingly active in Africa, with five sovereigns issuing Sukuk in the past year: Gambia ($230 million), Sudan ($70 million), Senegal ($210 million), Nigeria ($700 million) and South Africa ($500 million). Tunisia, Egypt and Morocco, among others, have announced their interest as well.

www.bankerafrica.com

page 38 SECTOR FOCUS IFIF032.indd 38

29/03/2016 18:03

THE LEADING INTERNATIONAL MEETING BETWEEN

West African stock market players - government representatives and community institutions, CEOs and CFOs of BVRM* listed companies, brokers, Asset Managers - and investors based in the Middle-East *The Regional Stock Exchange (BRVM) is a seamless electronic stock exchange common to 8 West African countries: Benin, Burkina Faso, Côte d’Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo.

In 2015, the BRVM was the highest performing African stock market with a progression of 17.77% of its composite index (BRVM Composite).

1 day conference featuring one-to-one meetings, 3 panels focusing on macro-economic prospects, investment opportunities and improvement of relations with international investors

20+ high-level speakers Key speakers include: • His Excellency Daniel KABLAN DUNCAN, Prime Minister, • • • • •

Minister of the economy, finance and budget, Côte d’Ivoire; Khaled AL-ABOODI, General Manager, Islamic Corporation for the Development of Private Sector (ICD); Christian ADOVELANDE, President, West African Development Bank (BOAD); Ade AYEYEMI, Chief Executive, Ecobank Transnational Group Incorporated (ETI); Alioune NDIAYE, CEO, Sonatel; Adrien DIOUF, Director, Agence UMOA-Titres;

• Ali KHALPEY, Managing Partner, Exotix; • Selloua CHAKRI, Head of Market Structure Strategy Middle East & Africa, Bloomberg LP;

• Pierre Atepa GOUDIABY, Chairman of the Board of Administration, BRVM - DC/BR;

• Edoh Kossi AMENOUNVE, Managing Director, BRVM - DC/BR;

• Alban KOUAKOU, Managing Director, NSIA Finance; • Patrick BROCHET, Co-founder and Managing Director, IMPAXIS Securities.

With the official support of:

Partners

Media Partners

To register, please contact: contact@brvminvestmentdays.com / Limited seats available.

www.brvminvestmentdays.org BA bleed guide.indd 1

28/03/2016 18:18

TECHNOLOGY

When knowledge really is power Business intelligence capacity is shaping modern banking, says Tammo van Leeuwen, Marketing Strategy Director, CR2

S

o, why exactly is business intelligence so important in todayâ&#x20AC;&#x2122;s global financial markets?

Tammo van Leeuwen

Todayâ&#x20AC;&#x2122;s global banking markets are ever-changing. Customers are becoming more demanding and savvy in relation to their banking needs and experiences, technology is evolving at break neck speed and the financial environment itself is transforming and developing constantly. The world is waking up to the power of information and now, more than ever before, we are seeing the importance of having appropriate business intelligence at hand to analyse the masses of information available to banks. But doing this, not only can banks improve the experiences their customers have on a day-to-day basis, but also increase selling opportunities and subsequently, profits. By giving a clear picture of how their customers behave and why, a good business intelligence tool can make a very real impact on the way a bank serves its customers.

What do we mean when we talk about business intelligence specifically in relation to banking?

With such a diverse range of services and issues in todayâ&#x20AC;&#x2122;s financial ecosystem, banks handle enormous

40 page 40-41 Tech-CR2 032.indd 40

amounts of information on a daily basis. With specific regard to banking, business intelligence essentially refers to organising and analysing this wealth of information they already have in their possession in a way which not only improves the decisions which the bank makes, but also enhances their performance and gives them invaluable insight into the behaviours and preferences of their customers.

In recent years, we have seen an obvious shift in thinking regarding business intelligence as banks globally are becoming aware of how data has redefined the very foundation of how they do business. Banks now clearly see the need to be proactive in managing and analysing this data if they want to stay ahead of the competition is fast growing markets. As banks move away from their costly reliance on bricks and mortar branches and the personal relationships banking customers traditionally had with staff, it is becoming increasingly important to ensure that this information is not lost in the evolution. With any number of low cost per transaction self-service channels now available for banking customers to use from mobile, to internet, to ATM, it is easy for this mass of data to become siloed and confusing.

To tackle this, the consolidation of information really is key.

www.bankerafrica.com

28/03/2016 17:24

By successfully harnessing and utilising your banks knowledge of customer habits, transactions and preferences the opportunities for launching new products and services really are endless. However, having this information is just the first step in realising the potential of true business intelligence.

To capitalise on this, banks will need to fully analyse this data with a 360-degree view of the entire customer relationship.

As banks are constantly challenged to find new and innovative ways to enhance customer loyalty and maximise revenue, having an understanding of customers and their behaviour really does give a bank the edge on their competition. With a 360-degree view of its customer, a bank can cater to the unique and individual needs of each and every customer, providing a personalised experience across channels. By enabling banks to provide these enhanced customer experience on lower cost channels such as the ATM, internet or mobile, true business intelligence not only creates opportunities to cross and up-sell, but also lowers the banks cost to service their customers.

The need for omni-channel is not only about the centralisation of the data, but offering the customer the right solution and the right time at the right channel without being intrusive or annoying the customer with offers he doesn’t need—essentially, creating the evidence for the customer that the bank hasn’t got a good inside in his needs. It might be better not to promote products, then getting it wrong again and again.

The challenge is to transfer data into actionable date and, based on the data offer, a mild form of campaigning happening simultaneously on the different channels or ideally at the relevant channel.

A customer is more likely to have an instant cash loan at the ATM by the end of the month to make it till the next month trying to take out cash, then in the beginning of the month via the mobile app. The power of the omni-channel to offer it never the less on all channels if required and withdraw the promotion on all the channels when accepted

As we all know, in this age of constantly changing customer demands, knowledge and information is power.

Put simply, CR2’s business intelligence tool provides the capability to quickly segment your customer base in order to effectively target customers with the product and marketing campaigns which are right for them.

What exactly is CR2’s Business Intelligence Tool?

So what can business intelligence really do for a bank?

CR2’s BankWorld Business Intelligence has been specifically developed to serve the evolving nature of the banking industry in fast growing markets. It is a tool for analysing a banks customer base and the wealth of information

There really are any number of reasons why all banks should use a Business Intelligence tool. Not only will it give a bank instant access to business metrics reports and get fast answers to their business questions,

As banks are constantly challenged to find new and innovative ways to enhance customer loyalty and maximise revenue, having an understanding of customers and their behaviour really does give a bank the edge on their competition.

— Tammo van Leeuwen, Marketing Strategy Director, CR2

collected by the organisation and provides the capability to quickly and simply segment the customer base for targeting marketing campaigns through the entire self-service channel network including ATM, internet and mobile. Our tool is not only useful in this sense, but really comes into its own when combined with the segmentation capability of BankWorld to effectively identify cross-selling opportunities, matching the right product to the right customer, simply.

Our tool extracts details from the shared BankWorld Channel Manager database in a way that allows for a comprehensive search capability, presenting the information to you in an easy-to-digest way.

but most importantly is will give them an invaluable insight into customer behaviour. By harnessing the potential of all of this customer data, a bank can create a virtual relationship with their customers which mirrors the personal in-branch relationships of banks in previous years. It gives banks the power to effectively segment and target their customers with just the right product at just the right time, in the most cost effective and efficient way possible. By using a business intelligence tool effectively, banks can be flexible to changing customer and market demands and stay one step ahead of the competition in an increasingly competitive financial landscape.

www.bankerafrica.com

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41 29/03/2016 18:05

TECHNOLOGY

Moving bank lending to the cloud Customers’ rising expectations for banking services mean cloud technology is vital, but getting the timing right is important, writes Ravi Pratap Singh, Executive Director & President of Products, Nucleus Software

W

Ravi Pratap Singh

42

ith the amount of hype and marketing around cloud technology, it would be easy to assume that it is a new concept, but in fact it was first talked about in the late 1960s. However, the reality of cloud computing has evolved tremendously since then, but it wasn’t until the popularity of services such as Salesforce.com that the concept of delivering applications over the internet gained serious traction. Later, when more and more cloud service providers stepped in, businesses across a range of industries such as retail, entertainment, healthcare, education, manufacturing and telecommunication began to move towards cloud.

In the financial services industry, firms have been slower to adopt cloud technology, primarily driven by concerns about data security,

regulatory compliance, service quality and performance stability. The absence of comprehensive, compelling cloudpowered offerings from banking software companies did not help.

Today this is changing. In fact, a study conducted by Skyhigh Networks found that financial services firms increased their cloud usage by 32.1 per cent during the period between Q2 2014 and Q2 2015. However, the focus has mostly been restricted to email, collaboration platforms, CRM, application testing and data storage.

The most mission critical banking applications are still run on legacy systems, which results in huge spending simply to maintain the systems—or to put it another way ‘run the bank’ rather than ‘change the bank’. This, in turn, limits the banks’ ability to enhance their customer service capabilities and digitise their operations.

www.bankerafrica.com

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28/03/2016 17:26

As customers become increasing accustomed to having access to services anytime, anywhere on their mobile devices, this has created more challenges for banks. The fintech companies and challenger banks have exploited these challenges, designing their services to address customers’ changing needs. Not only has this enabled them to get high customer approval ratings but also to deliver products and services with speed, efficiency and at dramatically lower costs. The use of advanced, flexible technology is one of the key success criteria. And by putting their solutions in the cloud they have been able to roll out products and services very quickly, reaching a wide customer base with much lower upfront costs. They use digital processing, can adapt swiftly to evolving business conditions, scale up/ down easily and more importantly— ‘pay-per-use’ to keep their operating costs low. Fintech companies such as One Credit in Nigeria, Premier Credit in Kenya, Mao Solidaria Microfinance in Angola are already leveraging the benefits of cloud.

According to a McKinsey report, around 80 per cent of Africa’s population today is not connected to formal financial services and as per MasterCard, only two per cent of retail transactions in Africa are electronic.

However, mobile money accounts have been successful in extending basic financial access to 12 per cent of the adult population and this segment is expected to generate up to $1.5 billion in revenue by 2019.

Hence, a huge opportunity exists for banks and financial institutions to harness the true potential of cloud for extending services in Africa. Moving to the cloud would be very beneficial for African banks and financial institutions as it would help them reduce the time to market, reduce the cost of operations, improve levels of

business agility while helping them to get closer to their customers.

It is an effective tool to innovate, digitise and fend off competitors.

Cloud capability enables banks to expand their IT capabilities faster and more cost-efficiently than building their own infrastructure, leading to quicker return on investment. Banks, today, need the capability to launch innovative loan offerings quickly, make better credit decisions faster, reach customers across multiple channels and incorporate insights driven by analytics.

It is interesting to note that banks and financial service companies with large customer bases that are already involved in digital transactions are keener to move to cloud as they

As customers become increasing accustomed to having access to services anytime, anywhere on their mobile devices, this has created more challenges for banks.

- Ravi Pratap Singh

understand the advantage and wish to extend the same digital experience to other aspects of the customer relationship. Today’s customer prefers a similar and seamless experience in their daily transaction touch points, which may range from shopping online to applying for a loan and booking for travel to payments or money transfers. Lending forms an important growth area for the banks and hence, it should be considered as a priority for moving to cloud. A robust technology platform powered by cloud can facilitate the setup of a completely

automated and digital loan origination process where the customer does not even need to visit a branch. The continued rise of self-servicing is supported through the combination of mobile and web channels hosted on a cloud setup. Advanced analytics can give predictive insights on the most appropriate segments to target, while identifying patterns for ideal/ delinquent customers and predicting, early, which customers are most likely to turn delinquent. Together, these capabilities powered by the advantages offered by cloud can give a huge boost to growth and efficiency.

To facilitate increased cloud adoption in Africa a number of challenges need to be addressed, such as reducing the complexity in moving banking business applications to cloud, managing both hosted and cloud setup simultaneously, coping with the poor network connectivity and addressing regulatory concerns. In addition to the complex IT ecosystem in a typical bank, the fact that not all applications are cloud ready, creates scenarios where some applications are moved to cloud while some still remain on-premise. The bank’s IT team will have to handle both setups with their individual requirements.

The biggest barrier—the prevalence of stable, available and cost effective internet connectivity is also improving tremendously in various parts of Africa paving the way for cloud adoption.

Cloud technology offers banks and financial service companies tremendous benefits but, like all other technologies, it should only be adopted after a careful assessment of their evolving business requirements and evaluation of the capabilities of the solutions in the market. They are the best judge of when to make the move, but if the signals are considered a strong indicator, the train has already arrived and may be just about to leave.

www.bankerafrica.com

page 42-43 Tech Nucleus031.indd 43

43 28/03/2016 17:26

GOVERNANCE

In the long-view, project finance is resilient More than 30 years of data compiled by Moody’s Investor Service find project finance loans recover relatively well

P

However, in almost two thirds of cases the most likely ultimate recovery rate was 100 per cent meaning no economic loss,” Davison added.

“Our latest study expands and updates the body of Moody’s research which has informed market debate on the credit risk of project finance, including the treatment of infrastructure project finance under Solvency II,” Davison said.

The report shows that project finance is a robust class of specialised corporate lending, even though project finance borrowers are highly leveraged, thinly capitalised special purpose vehicles with limited financial flexibility.

The study shows that marginal a n nual de faul t rate s improve

roject finance bank loans continue to demonstrate default and recovery performance that are attractive to long-term lenders, according to Moody’s Investors Service in its latest annual study, Default and Recovery Rates for Project Finance Bank Loans, 1983-2014.

“Our report shows that the 10-year cumulative default rate for project finance bank loans is consistent with 10-year cumulative default rates for corporate issuers of low investmentgrade credit quality,” said Andrew MOODY'S INVESTORS SERVICE Senior Vice Davison, a Moody’s MOODY'S INVESTORS SERVICE President and author of the report.

“Ultimate recovery rates for project finance bank loans average 80 per cent.

significantly over time from financial close. This seasoning characteristic differentiates the behaviour of project finance bank loans from corporate bank loans.

Marginal annual default rates, a measure of the likelihood that a performing obligor at the start of a year will default in that year, are initially consistent with marginal default rates exhibited by high speculative-grade credits. However, on average, they trend towards marginal default rates consistent with Single A category corporate ratings by year six from INFRASTRUCTURE financial close. AND PROJECT FINANCE INFRASTRUCTURE AND PROJECT FINANCE Moody’s said that ultimate recovery rates for project finance loans appear to be substantially uncorrelated

Exhibit 37 Exhibit 37 Distribution of certain Defaults and Ultimate Recoveries by regionRECOVERIES BY REGION DISTRIBUTION OF CERTAIN DEFAULTS AND ULTIMATE

BaselRecoveries II Definitionby of Default Distribution of certain Defaults and Ultimate region

Region

Africa Region Africa Europe Eastern Eastern Europe Latin America Latin America Middle East MiddleAmerica East North North America Oceania Oceania Asia Southeast SoutheastEurope Asia Western Western Europe Total Total

Defaults Defaults7

87 538 535 1385 138 25 25 54 54 135 135 425 425

Basel II Definition of DefaultAverage Ultimate Average Average Recovery Ultimate Years to Defaults Rate Average Recovery Default (Note 1) (Note 1) Years to Rate Defaults 3.3 83.0% Default (Note 1) (Note 1)4

3.3 3.4 3.4 3.2 3.2 2.8 2.8 3.9 3.9 3.8 3.8 3.7 3.7 4.1 4.1 3.8 3.8

43 243 244 4 81 81 13 13 39 39 58 58 226 226

83.0% 100.0% 100.0% 86.3% 86.3% 100.0% 100.0% 78.6% 78.6% 85.2% 85.2% 78.2% 78.2% 78.3% 78.3% 80.4% 80.4%

Average Years to Average Emergence Years to (Note 1) Emergence 4.81) (Note

4.8 2.0 2.0 2.4 2.4 1.9 1.9 2.1 2.1 2.0 2.0 3.5 3.5 1.9 1.9 2.4 2.4

Defaults Defaults5

57 7 51 51 5 5 117 117 23 23 50 50 92 92 350 350

Moody's Definition of Default Average Moody's Definition of Default Ultimate Average Average Recovery Ultimate Years to Defaults Rate Average Recovery Default (Note 2) (Note 2) Years to Rate Defaults 3.0 83.0% Default (Note 2) (Note 2)4

3.0 3.4 3.4 3.3 3.3 2.8 2.8 3.7 3.7 3.6 3.6 3.8 3.8 4.0 4.0 3.7 3.7

43 203 204 584 58 11 11 33 33 40 40 173 173

83.0% 100.0% 100.0% 83.5% 83.5% 100.0% 100.0% 74.0% 74.0% 82.5% 82.5% 76.0% 76.0% 70.5% 70.5% 76.5% 76.5%

Average Years to Average Emergence Years to (Note 2) Emergence (Note5.0 2)

5.0 2.0 2.0 2.6 2.6 1.9 1.9 2.2 2.2 1.9 1.9 3.5 3.5 2.1 2.1 2.5 2.5

Notes: 1)Based Notes: on 226 Ultimate Recoveries (BII) 2)Based 1)Based on on 173 226 Ultimate Ultimate Recoveries Recoveries (MDY) (BII) Source: AnalyticsRecoveries Project Finance Data Consortium 2)BasedMoody's on 173 Ultimate (MDY) Source: Moody's Analytics Project Finance Data Consortium

Based on the Basel II definition of default: Based on the Basel II definition of default: » The data shows a broad consistency of average ultimate recovery rates between Latin America, North America, Oceania, Southeast www.bankerafrica.com 44» The shows a broad of average rates between Latin(BII) America, North America, Oceania, Southeast Asia data and Western Europe,consistency representing a total ofultimate 215 outrecovery of 226 Ultimate Recoveries lying in the range of 78.2%-86.3%.

Asia and Western Europe, representing a total of 215 out of 226 Ultimate Recoveries (BII) lying in the range of 78.2%-86.3%.

Other regions have sample sizes which are too small to support statistically robust conclusions about average ultimate recovery Other rates. regions have sample sizes which are too small to support statistically robust conclusions about average ultimate recovery page 44-45 Governance 032.indd 44 rates.

29/03/2016 18:08

5.2 Distribution of Projects By Industry Sector Exhibit 7 shows the industry sector distribution of all the projects in the Study Data Set, and compares this with the corresponding distribution of projects in the Industry Data Set. In our analysis of industry sectors the Infrastructure industry sector refers specifically to the sub-set of social and transportation infrastructure projects within the Study Data Set. As noted previously, the Study Data Set accounts for approximately 62.0% of the larger Industry Data Set from 1983 through 2014.

The industry concentrations of the Study Data Set are very similar to those of the Industry Data Set – the correlation between the industry concentrations of the two data sets is in excess of 99%. There are modest differences between the two data sets in their respective concentrations in the Infrastructure and Oil & Gas industry sectors. It is likely that these differences are the result of the different client relationships, loan origination strategy and industrial focus of each participant in the Data Consortium, as well as the potential classification differences discussed in Section 3.

Exhibit 7

COMPARISON OF STUDY SET AND DATA SET BY INDUSTRY SECTOR Comparison of Study Data SetDATA and Industry DataINDUSTRY Set by Industry Sector Industry Sector

Industry Data Set

Chemicals Production Infrastructure Leisure & Recreation Manufacturing Media & Telecom Metals & Mining Oil & Gas Other Power Total

Industry Data Set %

300 2473 248 381 674 378 1012 111 3903 9480

Source: Moody’s Analytics Project Finance Data Consortium MOODY'S INVESTORS SERVICE

3.2% 26.1% 2.6% 4.0% 7.1% 4.0% 10.7% 1.2% 41.2% 100.0%

CUMULATIVE DEFAULT RATES (BII) BY REGION Exhibit 8

Comparison of Study Data Cumulative Default Rates (BII) by Region

149 1730 137 63 378 257 785 35 2346 5880

Study Data Set %

2.5% 29.4% 2.3% 1.1% 6.4% 4.4% 13.4% 0.6% 39.9% 100.0%

INFRASTRUCTURE AND PROJECT FINANCE

Source: Moody's Analytics Project Finance Data Consortium

Exhibit 19

Study Data Set

Set and Industry Data Set by Industry Sector

to calculate years to default for projects under the Basel II definition of default, and the actual payment default date was used to calculate years to default under the Moody’s definition of default; both sets were used in comparisons.

REGIONAL BREAKDOWN

12

21

The data showed that three regions— North America, Western Europe and Southeast Asia—accounted for the Source: Moody's Analytics Project Finance Data Consortium bulk of loan defaults at 76.9 per cent Source: Moody’s Analytics Project Finance Data Consortium 7.2.1 AVERAGE DEFAULT RATE BY OECD/NON-OECD COUNTRIES all together. This worked out to an Exhibit 20 shows simple average default rates by OECD/non-OECD countries. Exhibit 20 has been prepared on the basis of the 34 average default rate of eight to nine per OECD member countries as at 31 December 2014 – the list of OECD members is included in Appendix B (Glossary) with certain factors which are key cent for North America and Southeast to the bank taking on the exposure. determinants of ultimate recovery rates Asia, and between four and six per Based on this definition the data Caveat: TheMoody's simple average default rates Finance included in Exhibit 20 should be interpreted with caution, since (1) they do not reflect the risk profile of Source: Analytics Project Data Consortium for general corporate debt facilities—in cent for Western Europe, depending set includes 425 projects for which individual projects, which is likely to change based on time from origination; and (2) they do not reflect the time-weighted population of active projects exposed to default. particular, the legal jurisdiction of the on the Basel II or Moody’s definition at least one senior secured project defaulted company and default rates. of the default. By comparison, Africa finance bank loan has defaulted. Of The report—an updated and had seven defaults per 223 projects these 425 defaulted projects, 226 have Exhibit 20 expanded version of Moody’s previous according to the Basel II definition and subsequently emerged from default.

Average Default Rates by OECD/Non-OECD Countries Basel II Definition of Default Moody's Definition of Default study published in March 2015—takes a five defaults in the set according to the The Study also applies Moody’s Region Projects Defaults Average Default Rate % Defaults Average Default Rate % OECD 4530 308 6.8% 241 5.3% comprehensive look at the performance Moody’s definition—translating to an definition of default (MDY), which is Non-OECD 1350 117 8.7% 109 8.1% Total 5880 425 N/A 350 N/A of project finance loan transactions over average default rate of 3.1 per cent and slightly more specific and therefore Average N/A N/A 7.2% N/A 6.0% a 32-year period. The study now covers 2.2 per cent, respectively. captures less projects. Moody’s defines Notes: 5,880 project finance transactions “Default history in Africa and the default as applicable only to debt or debt1)Based on 5,880 projects 2)Based on 425 Defaults (BII) originated globally during the period Middle East has been exceptionally low, like obligations, and notably does not 3)Based on 350 Defaults (MDY) Source: Moody's Analytics Project Finance Data Consortium 1983 to 2014, an increase of 11 per cent with only twelve defaults in the Study include ‘technical defaults’ such as such in the size of the study data set.

Data Set,” Moody’s said in the report. as maximum leverage or minimum debt 17 March 2016 Default Research: Default and Recovery Rates for Project Finance Bank Loans, 1983-2014 The Study uses the Basel II For the Middle East region, against a coverage violations, unless the obligor definition of default (BII), which background of regional geopolitical fails to cure the violation and fails to Moody’s defines as the bank putting tensions exemplified by the Gulf War honour the resulting debt. According the credit obligation on non-accrued 1990-91, the invasion of Iraq in 2003, to the Moody’s definition, the data set status; the bank also makes a chargethe wave of Arab Spring uprisings includes 350 defaults, of which 173 have off or account-specific provision commencing 2011 and the Israeli/ subsequently emerged from default. resulting from a significant perceived Palestinian conflict, this outcome is Moody’s said that the Basel II decline in credit quality subsequent highly notable.” default date was used in the analysis 17 March 2016

Default Research: Default and Recovery Rates for Project Finance Bank Loans, 1983-2014

www.bankerafrica.com

page 44-45 Governance 032.indd 45

45 29/03/2016 18:08

GOVERNANCE

Establishing a legacy of transparency Solid corporate governance brings in more investor interest and solid capital market growth, argues Crescent Enterprises The MENA region has the lowest rate of new firm formation apart from Sub Saharan Africa, according to Crescent Enterprises (CREDIT: SERGIGN/SHUTTERSTOCK).

I

n a report launched at this recent World Economic Forum in Davos, Crescent Enterprises, a UAE-based multinational company, took an in-depth look at the implementation and sustainability of corporate governance practices in the Middle East and North Africa (MENA) region.

“Recent events involving fraud, waste, nepotism, abuse of power, conflict of interest, and corruption have shone a light into the darkest corners of our corporate landscape,” Badr Jafar, CEO of Cresecent Enterprise, said in Corporate Governance for Competitiveness in the Middle East and North Africa. Yet corporate governance has always been vital to the sustainability of companies.

The institution of good governance practices is especially relevant in MENA, where the prevalence of stateowned or family-owned companies has sometimes limited the institution of clear practices. But even among private companies, slow adoption of corporate

46 page 46 Governance 032.indd 46

governance can limit investor interest and success on the capital markets.

“While significant progress has been achieved over the past decade in establishing governance frameworks for listed companies in particular, and especially in countries with large capital markets, progress in improving governance of privately-held family firms has been slower,” Jafar said.

“As a result, the quality of governance practices displayed by privately-held firms in the region varies significantly.

While some have embraced a culture of better governance, others are persisting with practices that are dangerously ill-suited to the region’s increasingly complex and globally-integrated economic environment.”

Crescent Enterprises estimates that more than $1 trillion of family firm-held assets are passing into the next generation over the course of the next five to 10 years, most often from second to third generation.

It is this transition, according to Crescent, that can be the most destructive, with only

30 per cent of family businesses surviving beyond the third generation. Stronger corporate governance policies could prevent this downfall, but implementation proves tough.

The same could be said for stateowned enterprises (SOEs), which are common in North Africa. Crescent says that a key priority for further accelerating private sector development must be a more level playing field between private and state-owned firms. This is particularly true in encouraging not just investment into existing business, but new startups—Crescent cited data that the MENA region has the lowest rate of new firm formation apart from Sub Saharan Africa, a trend that stymies innovation, growth and the long-term competitiveness of the region’s private sector; according to International Monetary Fund data from 2014, highincome countries register on average four new firms per 1,000 working-age adults while MENA countries register only 0.63 new firms.

www.bankerafrica.com

28/03/2016 17:30

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

OUTLOOK

A mall in Accra, Ghana, anchored by the South African grocer Shoprite, is just one of the centres popping up across major cities (CREDIT: NATALY REINCH/SHUTTERSTOCK).

The market’s open Research shows consumer-driven sectors like retail shopping is driving future growth in Africa

T

hough the fall in commodity prices has limited some government revenues and even GDP forecasts, that’s not the full story of African growth. Recent reports by PricewaterhouseCoopers (PwC) and Knight Frank both show the budding retail and consumer goods industries are keeping many African economies afloat and even driving new growth.

“As Africa has risen to prominence as an investment destination over the past several years, so the role of retail and consumer goods has taken on greater significance,” Anton Hugo, Retail

48 page 48-49 Outlook032.indd 48

and Consumer Industry Leader, PwC Africa, said. “Sub Saharan Africa [SSA] remains one of the fastest growing regions in the world and the successful expansion of a number of global and African retailers and consumer goods companies across the region speaks to the opportunities that exist.”

PwC’s inaugural report on the sector, So Much in Store, looked into the potential for retail and consumer business opportunities in Cameroon, Ethiopia, Ghana, Côte d’ Ivore, Kenya, Nigeria, South Africa, Tanzania and Zambia.

Meanwhile, Knight Frank’s Shop Africa report explore the recent spike in mall development in a number of African capitals, indicating a growing appetite for convenient retail. Knight Frank said that while shopping centres are a relatively new phenomenon in SSA, the trend has taken hold particularly in Nairobi, Luanda, Lagos, Dar es Salaam and Maputo, the five cities it identified as having the biggest pipeline for shopping centre developments. These exclude South Africa, which Knight Frank left out of the research due to its already relatively well-developed retail markets.

www.bankerafrica.com

28/03/2016 17:32

2 million

estimated size of Africa’s population by 2050

40% 350 million

urbanised population of Africa

middle class consumers in Africa

3 million

square metres of estimated shopping centre space Source: Knight Frank, Shop Africa

PwC says that while informal retail still dominates in most markets, shopping centres are increasingly becoming a popular, yet expensive, option.

“The industry is in the process of modernising with a number of westernstyle shopping centres taking shape in countries like Nigeria, Kenya and Ghana.

It is also interesting to note that in some countries such as Ghana, Nigeria and Zambia, many of the malls are anchored

by South African retailers,” Michael Mugasa, PwC Partner in Kenya, said.

“For some countries, the building of shopping malls is a challenging

and expensive business due to the difficulties in securing land, resources, and the costs associated with building,” Mugasa added.

Both reports cite fast-growing and changing demographics as key drivers of the retail demand. Africa’s population is not only growing at record rates— expected to double to two billion by 2050—but it is also increasingly urban, with an estimated 40 per cent of the population living in cities. At the same time, a middle class tuned into consumer goods is steadily growing.

PwC research even suggests that these new consumers, as they become more informed, are more health and brand-conscious.

“Africans are becoming more connected to global trends than ever before as a result of growth in internet penetration and travel,” Hugo said. A parallel trend is the rise of home-grown organisations and local production. This reflects both consumer consciousness and government’s abilities to ensure these value chains to market. Knight Frank highlighted Kenya’s Nakumatt and Uchumi supermarket chains and Botswana’s Choppies, all of which have been opening regionally in East and Southern Africa.

Edafe Erhie, PwC Partner in Nigeria, said, “...Africa’s fortunes are very much tied to those of the global economy. Pressure on emerging market currencies coupled with a decline in oil and other commodity prices has seen pressure on government revenues and the ability of governments to increase social expenditure and wages in the public sector. African retailers will need to focus their efforts on operational efficiency and managing the effect on their operations of volatile currencies.”

Knight Frank noted that many of the investors backing these shopping centres are African, from Centum in Kenya to Persianas Group in Nigeria, and RMB Westport, Hyprop and Attacq in South

Anton Hugo, Retail and Consumer Industry Leader, PwC Africa

Africa. Active international players are led primarily by Actis, the UK investor that launched its first Africa Real Estate Fund in 2006 and has since developed several large shopping centres in Nigeria.

Matthew Dadd, Partner for Commercial Leasing at Knight Frank, said, “The shopping centre sector currently provides many of the most eye-catching examples of commercial property development in Sub Saharan Africa. Even though retail construction activity has accelerated, nearly all of the region’s major cities remain hugely undersupplied by global standards. Shopping centre development is set to continue apace, and it will play a major role in shaping the future landscapes of Sub Saharan African cities.”

Knight Frank forecasted that Middle Eastern retailers and investors would be next to move in, with several Gulf players already setting up in Kenya and Nigeria.

Ben Woodhams, Managing Director for Knight Frank Kenya, said, “A number of reputable UAE-based companies are looking to enter the African retail market and the success of new entrants is likely to open up doors for major investment inflows into the region.”

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THE VIEW

PICTURE OF THE MONTH

Refugees from North Africa protest in Milan, Italy, for their rights on 18 March 2016. According to Eurostat data, six out of the top 10 origins for European migrants are in Africa, including Eritrea, Somalia, Nigeria and Mali (CREDIT: ALEXANDRE ROTENBERG/ SHUTTERSTOCK).

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