Africa's Top 100 banks 2005.

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This year's African Banks rankings indicate that the industry, as a whole, has continued the process of growth and reform. Multinational banks lead the way, and South African banks, as usual, take most of the top spots. Encouragingly, regional banks are rationalising operations, enabling them to become bolder in the projects they underwrite. However, services to small-scale businesses and rural customers--apart from the spectacular performance of South Africa's African Bank--continue to lag far behind despite appeals from governments to the industry.

In this report, we review banking highlights both on a continental as well as a sub-regional basis, as we have done in the past. This year, our Special Focus is on Nigeria where a banking 'revolution' of sorts is underway.

The report was written by Neil Ford, Moin Siddiqi and Jato Thompson. Moin Siddiqi compiled the ranking table for Africa's Top 100 banks.

BANKING ON THE PEOPLE

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African banking is changing as a result of financial reforms taking place all over the continent. Neil Ford reports.

Average economic growth across the continent of Africa may be at an eight-year high, but it is still feared that too much African money is invested overseas.

African banks have performed better in recent years and our table of the Top 100 banks (Pages 18 and 19) on the continent provides a great deal of evidence of growth in both assets and profits compared to last year, but Africa's financial institutions are still failing to fulfil their potential as engines of growth. There are signs, however, of changes in the sector that could turn this situation around over the next few years.

Some international banks that specialise in providing banking services in Africa and Asia have performed well over the past couple of years. For instance, UK bank Standard Chartered recorded a 20% rise in pre-tax profits in the year to June, partly because of expansion in Asia but also because of the growth of its African subsidiaries.

The company's chief executive, Mervyn Davies, commented: "Standard is firing on all cylinders. I think both businesses (consumer and wholesale banking) have good income momentum and we expect them to deliver continued income growth." The bank has subsidiaries in many African countries, of which those in Ghana, Kenya, Tanzania and Zimbabwe make it into our Top 100.

The traditional picture of the African banking sector is of international banks like Standard Chartered and Barclays competing for large commercial customers and high net worth individuals, with state-owned or formerly state-owned national banks vying for the same market, while also providing some services to less wealthy individuals.

However, this picture has begun to change somewhat as a result of two entirely different developments that have been enabled by the process of the piecemeal financial services deregulation that is taking place across the continent--the cross-border expansion of African national banks and the emergence of micro-lending.

The process of regional integration in several areas has prompted several banks to invest in branches in neighbouring states. This process is examined in the East African context in more depth in the relevant section following but there has also been some movement in this direction in West Africa. For instance, Zenith Bank Nigeria has recently secured permission from the Nigerian and Ghanaian central banks to open offices in the Ghanaian capital, Accra.

At the same time, the continent's biggest bank, Standard Bank of South Africa, has expanded its operations across the continent. Standard Chartered divested its 39% in the company in 1987, turning it into a genuinely South African firm. Since then, Standard Bank has opened offices in 16 African states and in 2003 recorded operating profits outside South Africa of $108m. The bank intends to continue this process through a policy of targeted acquisitions, buying up formerly state-owned banks where it can greatly improve efficiency.

Banking vacuum in SMEs

Most attention in the banking sector, and indeed in our report, is paid to commercial banks that deal with large business and more wealthy personal clients. However, in terms of promoting economic activity, the increase in the provision of banking services to poorer people, particularly in rural areas, is perhaps of even more importance.

The lack of access to credit and other banking services has repeatedly been cited as one of the reasons for the lack of success of small and medium-sized enterprises (SMEs) in Africa. Such firms tend to account for the lion's share of economic activity in more industrialised nations but there is a vacuum in most African economies between one-man operations and large companies.

Non-governmental organisations and multilaterals alike have tried to back micro finance schemes across Africa in an attempt to create an investment environment where SMEs can thrive.

Creating networks of small rural banks is a major part of this process, but it is one area where international banks and national African banks have been conspicuous by their absence. Some governments have also sought to provide improved banking services through their national post office network. For example, Lesotho Bank closed many of its rural branches following privatisation, so the government has launched PostBank to provide services through the country's post offices. The first PostBank branches opened in January and the service has gradually spread out around the country. According to the country's officer for public affairs, Tiisetso Matete, there will eventually be "47 branches throughout the country, most of which will be situated in the rural areas."

Another strong trend within African banking over the past year has been the rationalisation of Nigeria's banking industry. The era of small, meagrely capitalised banks always on the brink of bankruptcy will come to a close at the end of this year. It is expected that the mergers and acquisitions now taking place will leave the field to a dozen or so large, well capitalised institutions that will provide stability to the industry and roll out services to the general public. (See the 'Focus on Nigeria' section).

REGION BY REGION

SOUTH AFRICA STILL ON TOP

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Southern Africa

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The fact that South African banks dominate the list of the Top 100 banks in Africa should not come as a surprise to any African Business reader. With by far the biggest economy and most advanced banking system in Africa, South Africa hosts the six biggest banks on the continent.

However, the strength of the Southern African economy is demonstrated by the presence in the list of 11 Southern African banks from outside South Africa. Almost all Southern African Development Community (SADC) member states are represented, including Zimbabwe, with four.

Undoubtedly the biggest news in the Southern African banking sector over the past year has been the return of the UK's Barclays Bank to the country. Barclays completed the R30bn ($4.5bn) purchase of a 54% controlling stake in South Africa's Absa bank at the end of July, in what was billed as the biggest ever foreign direct investment in the country.

The British bank originally pulled out of South Africa, after a long association with the country, in 1986, following a sustained campaign by anti-apartheid activists. Absa is South Africa's biggest retail and internet bank and is the second biggest in the country by capital and profits.

Including its existing operations elsewhere on the continent, Barclays calculates that it is now the biggest bank in Africa. Barclays paid R82.50 a share, while Absa offered its shareholders a R2 per share dividend. John Varley, the chief executive of Barclays, said: "This transaction accelerates our strategy to internationalise Barclays' earnings and increase our exposure to selected high growth, well run markets. South Africa is a dynamic economy with great growth potential."

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South Africa's ministry of finance released a statement describing the purchase as a "vote of confidence in the country's significant political, economic and social progress over the past decade". Barclays hopes that it can generate extra income by making credit cards more widely used in South Africa, while it also aims to increase the geographical and income spread of banking service users by providing bank accounts for the less wealthy. Absa and the country's other big retail banks launched Mzansi bank accounts last October in a drive to encourage all members of society to open an account. The widespread use of cash to pay large bills in South Africa is seen as an encouragement to crime.

The other big development in South Africa is the ongoing process of established banks offering stakes to black empowerment investment funds. Standard Bank, Africa's biggest financial institution, agreed to sell a 10% stake to a range of black empowerment enterprises late last year, in line with sector policy.

Within the financial and banking sector, companies have agreed to increase the proportion of black South Africans in their workforce from 25% to 50% by 2008, while the number of executives should rise from 10% in 2003 to 25% and the percentage of board members should reach 33%, up from 25% at present, by the same date.

Outside the continent's economic superpower, two main trends can be identified: a piecemeal approach to deregulation and a more concerted push towards the greater use of automated payment systems.

Lesotho Bank has continued to dominate Lesotho's banking sector since privatisation but the government has now approved an operating licence for South Africa's First National Bank (FNB).

The South African bank now has a foothold in all Southern African countries within the Common Monetary Area. Despite Lesotho's noted red tape, FNB chief executive Richard Hudson revealed: "We have been able to rapidly...

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