Renaissance Capital Advises African Banks on Home Investments 


February 13, 2018//-Renaissance Capital, a leading emerging and frontier markets investment bank, has advised African banks to focus on their home market and getting it right.

 “That said, our view is that much of Sub-Saharan Africa (SSA) has turned for the better, and growth should be more comfortably attained”, according to the bank.

Bullish on SSA growth

In its latest research, the investment bank said: “We make no changes to forecasts at this point, although we are positive on the ability of SSA to deliver growth in the next few years, and certainly in the next 12 months; in some cases driven by political developments, in others by renewed economic activity, and while the stars are unlikely to align perfectly, we are fairly bullish on SSA. We see potential for the region to grow, and our banks, as a collective, to grow with it”.

Barclays Africa Group no slouch in SSA, but challenges lie ahead

“Most consistently impressive in their SSA endeavours have been the South African ( SA) banks with widespread – and longstanding – operations in the region, that is Standard Bank (SBK) and Barclays Africa Group (BGA), although even then our sense is that they have done, and can do, better in their home market to the greater benefit of shareholders – BGA in particular”.

The RenCap researchers also observed that SBK has the bigger SSA portfolio, bigger profit base, and certainly a wider reach across SSA than BGA, but it is not obvious to them that it has the better or better-balanced operation.

“In fact, relative to the size of the greater group and returns achieved, BGA’s SSA operations rate well, in our view, much as the challenge of separation from Barclays still looms large”, they added.

The delta (should) belong to Nedbank

SSA has thus far been a poor expansion play for FirstRand (FSR) and Nedbank (NED), although arguably it is early days yet. FSR’s SA operations have powered ahead in the past few years, while the nascent exposures in SSA have struggled, to the point where SSA’s contribution has shrunk in the past few years. Investment will continue, but FSR has firmly sketched its split priorities when it purchased the UK’s Aldermore recently.

For NED, the loss it will equity account from its Ecobank Transnational Incorporated (ETI) investment in 2017 should turn into a profit in 2018, but will make for poor reading in the upcoming results. We like NED on valuation grounds and the ETI turnaround potential, but note the potential overhang from the looming Old Mutual unbundling, the research noted.

SSA banks: Contained ambitions

Most SSA banks’ expansion beyond their home markets has been relatively recent and fairly tentative. To date, none has made an impressive success of generating returns, though of the Nigerians, United Bank for Africa (UBA) has come closest.

In most instances the contributions remain minor and volatile, and returns elusive. The widest presence belongs to ETI, and while the researchers believe that a strategic pullback is likely in the long term, they believe it should focus first on getting Nigeria right – the biggest single exposure and the most likely to make a difference to the bottom line.

“We remain sceptical of the Nigerian banks attempting to expand into East Africa. In terms of investment stance, we favour the Nigerian banks over the Kenyans on a more positive short-term outlook in their home market, despite the recent run by the former”.

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