Banking the world’s poorest continent is evidently an immensely profitable pursuit. That, at least, is clear from the fact that Africa’s largest lender, Standard Bank, announced a record profit for the six months through June of R26.1bn.
Investors liked the numbers, which investment analyst Keagan Higgins said, were “ahead of market expectations”, giving the share price a 1.4% on the JSE –outperforming its peers. That also notched up gains over the past year to 35%.
But the real story was the muscular performance of its investment banking and corporate (CIB) unit that puts together deals across the 21 countries in which Standard Bank operates and banks the large companies, governments and parastatals. Earnings in this division soared 15% to R13.8bn — more than half of the bank’s overall profit – and quicker than the 10% headline earnings growth achieved across the group.
The fact is, “Standard Bank’s CIB business is multiples bigger than the nearest South African competitor,” says Vincent Anthonyrajah, CEO at Differential Capital. In his view, this is driven by two main factors, both to do with the bank’s African region projects.
First is the bank’s global markets business, a financial bridge connecting the African continent, mostly involving trades and transactions in foreign currency. Anthonyrajah wagers that 40% of all trades of this nature between South Africa and the rest of the continent are solely done by Standard Bank. “There’s not a South African bank that is even close to them in that size or scale,” he says.
Secondly, the transaction banking part of the CIB business “sets them apart,” says Anthonyrajah. This effectively entails cash management and cross-border payments. The bank is responsible for moving about R430bn a day as part of this business and makes healthy margins off what Anthonyrajah describes as the “lazy deposits” part of transaction banking. The group holds a 30% share of cross-border payments in South Africa and 19% across the rest of Africa, with domestic and cross-border electronic payment values up 11% and 7% respectively over the period.
While competition might be increasing from banks such as Absa, which operates in 12 countries continent-wide, “it would be difficult for a peer to replicate Standard Bank’s network and client relationships quickly,” Higgins says.
Africa has for decades been Standard Bank’s focal growth point, and its expansionist plans have largely been a success. Today, the region contributes 40% of group earnings, with Angola, Ghana, Kenya, Mauritius, Mozambique, Nigeria, Uganda and Zambia among the biggest contributors.
“A lot of the big global banks have shied away from Africa,” Anthonyrajah says. “And that’s allowed Standard Bank to really dominate many markets from a CIB perspective.”
This is because, as Anthonyrajah puts it, “In Africa, you’re not fighting over a shrinking pie”, and, as a result, Standard Bank has “very strong” tailwinds that can keep supporting it for “certainly longer than five years”.
Standard Bank CEO Sim Tshabalala’s view is that the group has “not even begun to scratch the surface” of potential for growth in Africa. He points to the continent’s projected growth rate of 4.7% by 2030 – well ahead of the roughly 3%-3.2% the IMF sees for the global economy. “It’ll be growing faster than every single region in the world.”
Tshabalala sees the bank’s opportunity in the volumes of trade and movement of goods that will occur. “All of that needs to be intermediated. And there actually isn’t sufficient capacity to meet the demand.”
Areas of disappointment
Still, while CIB does the heavy lifting for Standard Bank, experts agree it is worrying that the bank’s other units are performing so markedly differently. Business and commercial banking earnings fell 2% to R4.45bn, while personal and private banking dipped 1% to R4.6bn – only about a third of the size of the CIB business, which is disappointing when considering that it acts as the bread and butter for banks like Capitec.
Tshabalala disagrees, saying “the data doesn’t support the need for worry.” He notes that in both commercial and personal banking, both units are performing “exceptionally well” in the South African region.
Personal and private banking is mostly down only “because of two countries, Botswana and Mozambique,” he notes, as well as declining interest rates across Africa and the weakening of African currencies relative to South Africa. He also points out that “corporates are growing much faster than households” across the continent, and therefore the corporate banking business is naturally going to grow at a quicker rate. “So, we’re not worried, but we’re staying close to the data.”
Standard Bank is alive to the threat of AI and fintechs, too, especially to retail clients. Tshabalala has previously flagged fintechs – especially in Africa – as low-priced, high-tech, user-friendly rivals to legacy banks, and the group is investing to keep pace: 72% of employees were active users of generative AI tools by June, with 78% of its computing shifted to the cloud to support further rollout.
Radebe Sipamla, an investment analyst at Mergence Investment Managers, says that unlike legacy banks, which are extremely risk averse when it comes to credit decisioning and often want months of bank statements, fintechs like Optasia are “able to offer credit to those customers who are underbanked and left out of the formal credit market”, he says – a gap that matters in Africa, where much economic activity never generates a payslip.
That is exactly what FirstRand is betting on. It bought a 20% stake in Optasia last October, then upped it to 26.1% this March – a top-up alone worth close to R1.5bn. Sipamla expects more banks to follow, buying into fintechs to acquire the technology rather than build it.
Standard Bank has taken the other route: rather than a large equity stake, it has anchored a $330m syndicated refinancing for Optasia, backing the fintech's airtime-credit and micro-financing businesses as they expand into new markets.
FirstRand is buying a seat at Optasia’s table. And, while Standard Bank has an undisclosed equity stake in the fintech firm, it is mostly doing what it already does inside its own client base – handling the banking and the deals, and taking a cut.
