E-Financial
UBA, Others Lead as African Banks Make Waves
Ade Ayeyemi’s office in Lomé, the capital of Togo, is a good place to think about crossing borders. Ghana is ten minutes’ drive away.
From his window the boss of Ecobank can watch trucks rumble along the seafront, some bound for Burkina Faso, a day’s journey, or Mali, perhaps another day on. At night, cargo ships twinkle offshore. From here Ecobank’s vision—“to integrate the continent”, Mr Ayeyemi says—is clear. Whether it will be profitable is less obvious.
Ecobank was founded in 1985 by business leaders with backing from the Economic Community of West African States, a regional bloc. It has branches in 33 countries, more than any other African bank (see chart). It is not alone in its ambitions. Nigeria’s United Bank for Africa (UBA) wants to make half its profits elsewhere in the continent by 2022. South Africa’s Standard Bank recently opened in Ivory Coast, its 20th African country. Moroccan banks are trekking across the Sahara.
African bankers have long preached some version of what Tony Elumelu, UBA’s chairman, calls “Africapitalism”: the idea that far-sighted, home-grown businesses can drive development. In Nigeria banking reform in 2005 set off a wave of consolidation. The survivors were heftier and more profitable, with capital to invest abroad. Kenyan banks have used their edge in innovation, such as mobile banking, to push into neighbouring markets.
Regional banks are now filling gaps left by their European and American rivals, which are retreating from a continent they once dominated. Barclays sold a majority stake in its African business last year. Other global giants have also reduced their exposure to African markets, which they judge too small and too risky in an era of tightened regulation. African banks work closer to the ground. “Banking is a relationship game,” says Ugochukwu Nwaghodoh, chief financial officer of UBA. “We have local knowledge.”
The pan-African vision often clashes with the reality of a fragmented continent. Africa’s regional banks earn lower returns and grow more slowly than domestic rivals, calculate consultants at McKinsey. One problem is the wide diversity of regulations and markets. Another is that banks are too small outside their core markets to grow organically, says Olamipo Ogunsanya, an analyst at Renaissance Capital. Some have made risky acquisitions, inheriting loan books with hidden troubles. Most banks, she argues, would do better to focus on a few key countries.
Consider Ecobank. The board ousted a previous boss in 2014 over allegations of mismanagement. In 2016 a recession in Nigeria, its biggest market, resulted in a $131m pre-tax loss. It has shut 74 branches there and laid off 2,000 staff. It has scaled back its ambitions beyond west Africa. Although it has returned to profit, about 10% of its loans are non-performing. Expansion may have been too rapid, Mr Ayeyemi admits.
But regional bankers see two big trends in their favour. The first is new technology, says Mr Ayeyemi, which makes it possible to operate on a continental scale as never before. Ecobank can design products and process data centrally, he notes, providing services even where it lacks physical branches. Is Africa’s diversity a problem? “You don’t ask Unilever the same question,” he replies, likening retail banking to selling consumer goods. Ecobank’s mobile app, which lets people open accounts on their phones, has attracted over 5m users since its launch in 2016.
The other helpful trend is the spread of regional banks’ corporate clients. A recent study by the Boston Consulting Group finds that the top 30 African companies now operate in an average of 16 countries, twice as many as a decade ago. Standard Bank’s clients range from construction firms to airlines, says Sola David-Borha, who heads its operations on the continent outside South Africa. “They are helping to grow our market share, as we use our expertise to support their expansion.”
Regional banks are also using their geographical reach to act as natural conduits for cross-border flows of capital, such as migrants’ remittances. Mr Nwaghodoh argues that UBA’s large footprint reduces the cost of intra-African trade, since the bank can stand at both ends of the transaction. He also cites the example of the aid sector, where donors need a “last-mile” presence to distribute cash or pay workers.
The growth of cross-border banking carries risks, says Amadou Sy of the IMF. Regulators need to patch the holes through which a crisis in one country could leak into another. A supervisory college for Ecobank, comprising regulators from the countries where it operates, first met in 2015. European experience shows that such measures are not always enough, warns Thorsten Beck of Cass Business School in London. “When a bank actually fails,” he says, “then the politics comes in.” Although most African banks hold plenty of capital, problem loans have been rising.
Yet Mr Sy also notes that regional banks can spur competition and export innovation. A study by Mr Beck published in 2015 found that African firms got loans more easily when foreign banks held a larger market share—as long as those banks came from Africa or elsewhere in the developing world. Expansion has not yet paid off for Africa’s banks. But, like the incoming waves beyond Mr Ayeyemi’s window, they have the tide behind them.
This article appeared in the Finance and economics section of the print edition under the headline “Making waves”
Central Bank of Nigeria (CBN) has awarded the country’s second Payment Terminal Service Aggregator (PTSA) license to Unified Payments, Nigeria’s premier financial technology company, following a rigorous and transparent process,
The move is targeted at enforcing existing requirement that all transactions from point-of-sale channels in Nigeria must go through a licensed Payment Terminal Service Aggregator (PTSA).
The CBN is enforcing the laws to clamp down on financial crimes and other market misconducts and it aligns with the CBN’s objectives to fully track all electronic transactions in Nigeria, given the propensity of using such transactions to fund insecurity, violent crimes, banditry, kidnapping as well as other vices.
According to one analyst, “By awarding a second PTSA license, the apex bank has proactively responded to industry operators who had expressed serious concerns about channelling all transactions through a single aggregator, the Nigeria Interbank Settlement System PLC (NIBBS), as has been the case for some years.
“With the new policy direction, payments service providers would henceforth route all transactions through either of the two licensed Companies.”
Other financial analysts and industry players have commended the Central Bank, affirming that “the move can be a massive step in the right direction. They also commended the open, transparent, and inclusive manner via which the selection process was managed, and the license awarded.
“The selection process, which lasted for months, began with an invitation for qualified organisations within the payment industry to submit an Expression of Interest document, alongside other requisite documentation and additional capital requirement of N1 billion.”
The new management of CBN decided not to give the license out without going through an open process – and for the first time in licensing a payment service provider – the apex bank went through a public bid process outlined in its publication of Friday, January 5, 2024, in different national newspapers. At the end of the process, Unified Payments emerged as the most preferred service provider.
Unified Payment Services Limited, also called Unified Payments or UP, is a shared service provider within Nigeria’s financial technology sector owned by a consortium of Nigerian banks. For over 26 years, the firm has provided payment technology to banks and other industry operators. The first and only non-bank entity that is a principal member and licensed acquirer of all of American Express, Mastercard, Visa, UnionPay and Payattitude. Unified Payments facilitates both local and international transactions.
Formerly known as ValuCard Nigeria Plc, Unified Payments led the way to introduce POS payments in Nigeria under its card scheme known as ValuCard which is the first payment card to be issued in Nigeria. The company later transformed into a scheme-neutral and option-neutral service provider enabling transactions under different schemes.
The company has continued to provide leading payment technologies and services, enabling different operators to leverage its capabilities and licenses, enabling prompt and seamless transactions.
Among the shareholders of Unified Payments are First Bank, Access Bank, United Bank for Africa (UBA), Guaranty Trust Bank Plc, Zenith Bank and Fidelity Bank. Other shareholders are Citibank Nigeria Limited, Ecobank of Nigeria Plc, First City Monument Bank Plc, Keystone Bank Ltd, Polaris Bank Ltd, Stanbic IBTC Bank Plc, Sterling Bank Plc and Wema Bank Plc.
Chartered Institute of Bankers of Nigeria, CIBN, has expressed support for the ongoing banking recapitalization exercise saying it will empower banks to lend more to the economy.
CIBN President, Dr. Ken Opara stated this yesterday while speaking at the annual lecture of the institute in Lagos, with the theme “Improving Availability of Credit in the Nigerian Real Economy: The Critical Importance of Liquidity.”
Okpara noted that the volume of credit to the real sector activities namely agriculture, manufacturing and services is low compared to their critical role in driving economic growth.
Consequently, he called for more credit to the real sector, saying, “I propose that we consider offering more credit to these key sectors and particularly the agriculture sector. It is for this reason that the Recapitalization exercise is a welcome development.
“The recently announced upward review of the Minimum Capital Requirements of Nigeria by the Central Bank of Nigeria would further empower banks to extend more credit to the economy’s productive sectors.”
To address these factors impeding credit to the real sector, Okpara suggested that, “The government needs to improve further the ease of doing business and infrastructural development, such as power, roads, rail networks, etc.
“Setting up industrial centres where these companies can co-habit and share common infrastructure. Harmonize and reduce the various taxes and levies, including locating them in a single hub.
“Banks need to be deliberate in de-risking these companies via Capacity building programmes, and Advisory services.
Specialised Financial Institutions can be created in addition to the Bank of Industry (BOI), especially credit guarantee agencies and risk-sharing institutions, to further facilitate the deepening of credit as practiced in countries such as China which significantly transformed its economy.
A new report claims that 20 per cent of Nigerians are using Bitcoin to carry out financial transactions every day.
According to the open-source blockchain website, Elastos, the research was compiled from online interviews conducted with 1,407 self-defined ‘tech savvy’ respondents in Brazil, Germany, Nigeria, South Korea, UAE, the UK, and the US.
The interviews were completed by a third party, a registered market research company and completed between 30 March and 04 April ’24.
The report further revealed that 67 per cent of Nigerians would have more trust in Bitcoin to put their life savings than banks and local governments.
The report reads; “The inaugural BIT Index (Bitcoin; Innovation & Trust) – compiled from over 1,400 self-defined ‘tech savvy’ respondents from 7 countries across the globe – sheds light on the actual perception and use of Bitcoin in people’s daily lives, irrespective of its current valuation. Elastos’ BIT Index is part of ongoing research to better track the ‘real world’ use of Bitcoin together with users’ motivations, expectations and barriers around the same.
“In particular, the data reveals the role being played by emerging markets in terms of understanding, usage and confidence around Bitcoin. Nigerian respondents’ levels of usage and trust compare starkly with those expressed from so-called ‘established’ markets such as Germany and the UK and Germany where daily usage levels are just 8% (for German respondents) and (9% for their UK counterparts).
“In terms of the trust – in addition to Nigeria – significant proportions of respondents from Brazil (35 per cent) and the UAE (32 per cent) would have more confidence in Bitcoin-based services to protect their life savings compared to those from markets such as the UK (20 per cent) and Germany (22 per cent).
“When it comes to ensuring the integrity of online transactions, emerging market respondents also revealed their relative confidence in Bitcoin, compared to alternatives. According to the data, 66 per cent of Nigerian respondents and 35 per cent from Brazil have more confidence in Bitcoin-based systems than alternatives such as banks, or national Governments, compared to figures of just 16 per cent (Germany) and 21 per cent (UK) who feel the same.
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