Africa: Crystal-Clear Trends

A clearer path for Africa’s banking industry is forming, as regulators focus on strong and supportive controls.

Access Bank, Nigeria’s biggest lender by assets, suffered a major setback in January after plans to expand in the Kenyan market hit a brick wall. A deal to acquire Sidian Bank for 4.3 billion Kenyan shillings (about $34.3 million), which would have made Access Kenya’s largest Tier 3 lender, failed.

Undaunted, the Nigerian lender, which boasts more than $29 billion in assets, 52 million customers and a presence in 17 countries, unveiled a five-year strategy with audacious targets by 2027: operations in at least nine new countries, 125 million customers and return on equity (ROE) in the range of 25% to 30%. The expansion will be driven by mergers and acquisitions, according to the bank, with priority to countries with better sovereign ratings and business-friendly regimes.

In many ways, the counterpoint between Access Bank’s setback and its ambitions reflects Africa’s banking industry generally. An emerging consensus sees prospects soaring to new heights, but the way forward is a footpath littered with land mines.

“The African banking industry is changing at a rapid pace,” says Charles Luo, Deloitte East Africa financial services institutions team leader. Consolidation, digital transformation and innovation are reshaping the industry; and regulators are determined to maintain stability via capital requirements, risk-based supervision and flexibility to enable innovation.

Enhanced regulations around liquidity ratios and reserves were central in helping weather the Covid-19 storm and provide some cushion against future shocks. Capital positions are strong, with average Tier 1 ratios at 15%, similar to the global average. ROE increased to 15% in 2022 from 12% in 2020, according to McKinsey.

African banking is now dominated by strong Pan-African giants and agile homegrown banks that are battling for supremacy amid digital disruptions following the exit of multinationals like Barclays Bank and the scaling down of operations by banks like Standard Chartered.

Togo-based Ecobank, present in 35 African countries, stands at the forefront of change. Riding on an aggressive digital strategy, Ecobank is determined to scale up operations. “Africa offers many opportunities,” states Nvalaye Kourouma, chief digital officer at Ecobank Group. “We are developing the right products and services to tap them.”

Notably, not all multinational banks are struggling here. For Societe Generale, the continent offers massive opportunities. “We are committed to being a reliable partner for positive transformations in Africa,” says Laurent Goutard, head of international retail banking for Africa, the Mediterranean Basin and Overseas.

Across the industry, volumes are on a growth trajectory driven by business sentiment and recovery of key sectors. Additionally, deposit growth has been strong, primarily driven by rising interest rates and higher yields. More important, a majority of banks have managed to stabilize nonperforming loan levels.

“The African banking industry is still a growth story, despite the volatility of the previous years,” remarks Omar Dayi, an associate partner at McKinsey’s Casablanca office.


Still, digitalization and competition are putting fee margins under pressure. A rising number of nonbank players are crowding traditional revenue pools, driving greater digital activity by the banks. Boundaries are being pushed in terms of innovations like artificial intelligence, blockchain technologies, big data analytics, machine learning and cloud computing.

At Ecobank, for instance, 94% of transactions are carried out through digital channels cutting across mobile and online banking, USSD [“quick codes”], agency banking and automated teller machines. “Technology has brought about efficiency and simplicity,” avers Kourouma. Apart from ensuring that the customer wins, it is bringing operational costs down.

However, room for adopting digital transformation remains huge. According to McKinsey’s December 2022 report on the state of African banking, “Digital adoption is between 20% and 30%; however, it could be higher. In Latin America and Asia, for example, digital adoption is around 50%, while in other global markets, it is as high as 72%.”

“As digital markets develop, the gap between best- and worst-performing banks opens up, with digital leaders achieving four-times better performance than laggards,” states Dayi. For this reason, digital transformation and innovation will continue to be a top-of-mind priority for banks.

The International Monetary Fund forecasts economic growth in sub-Saharan Africa to “remain moderate, at 3.8% in 2023.” But recovery of key sectors, influx of investments and the fact that, as the World Bank estimates, over 100 million adults do not have access to financial services, mean opportunities for banks are substantial.

Nothando Ndebele, Bayport Management Africa CEO, explains that some M&A activity is motivated by Pan-African and regional banks’ adoption of strategies to follow their clients expansion into new markets. “As corporate clients have expanded into new countries, banks have followed,” she notes.

There are good reasons for this trend. Currently, according to Access Bank analysis, Africa is home to over 400 companies with annual revenue in excess of $1 billion. With the African Continental Free Trade Area now beginning to connect large swathes of countries into a virtual trading zone, a boom in trade is imminent.


The impact is that the number of banks pursuing M&As is on the rise. Standard Bank, Africa’s largest lender by assets, is eyeing opportunities in North Africa, particularly Morocco and Egypt, in line with its 2025 ambitions.

In late January, Egypt’s top private sector bank, Commercial International Bank (CIB), took full control of Kenya’s Mayfair Bank, acquiring for $40 million the 49% it had not previously purchased. The lender, with about $20.8 billion in assets, had entered the Kenyan market in 2020 with the acquisition of a 51% stake in the third-tier bank.

Though still small, with a market share of 0.26% as at December 2022, Mayfair CIB is determined to cultivate a niche in targeting high-net-worth individuals and corporate clients while also seeking to make inroads in the small and midsize enterprise segment. “We will grow this bank as we continue to provide first-class services to all our clients,” says Hossam Rageh, Mayfair CIB executive director, in a statement.

As banks scout for opportunities across strategic markets, the Democratic Republic of the Congo (DRC) and Ethiopia are attracting special attention. Despite a dark shadow due to conflict, a huge population of 101 million people and vast minerals in the DRC are making banks scramble to enter the country. Ethiopia, for its part, has embarked on opening the financial sector to foreign banks.

“The sector’s prospects cannot be divorced from the macro outlook in each country,” notes Ndebele. In Ghana, for instance, severe macro headwinds are battering the sector. According to the Bank of Ghana, profitability levels have taken a nosedive due to mark-to-market losses on investments, higher impairments on loans and rising operating costs. Profit before tax stood at 6.4 billion Ghanaian cedis (about $521.2 million) at the end of December 2022, a 13.5% decline compared with an annual growth of 22.1% for 2021.

Macro trends are just one headwind. Rising sovereign debt threatens sovereign downgrades, which lead to lower bank ratings. Other challenges include political unrest; competition from fintechs and digital lenders; worsening cyberrisk and pressure to align with environmental, social and governance principles.

“The list can go on with little to no discord,” notes Goutard, adding that banks on the continent need resilience structures.

Also of importance is the impact of benchmark rate hikes by central banks in efforts to curb inflation and maintain economic stability. Largely, this means banks should brace for decline in credit demand, slowdown in consumer spending, increasing yields on investments and ultimately lower profits.

“Banks that practice sound risk management, and have enough capital and a diversified portfolio, are probably better prepared to withstand the effects of higher interest rates,” states Luo. He adds that these banks might be better able to cope with the rise in borrowing costs and keep operating profitably.