South Africa's largest banks have decided the time is right to seek profits elsewhere in Africa. Each brings its own strategy and appetite for risk to its continental expansion.

South Africa's banking titans – collectively referred to as the Big Four – have for some time eyed Africa as the next great frontier in which to grow.

While they all agree Africa is the place to be, they started their expansions at different times and in vastly different ways. While the pickings may look attractive, there is no guarantee of easy money.

Standard Bank began the charge in 1988 by acquiring a bank in South Africa's landlocked neighbour, Swaziland.

It continued to expand rapidly to the point where it now operates in 18 countries and derives 10% of its revenue and operating profit from the continent.

Following the downscaling of its ambitious emerging-markets growth plan in 2011, the bank chose to focus on the African continent as its key area for growth.

To enable this, on 31 October it promoted Peter Schlebusch to chief executive of personal and business banking of the group, with a specific focus to drive the Africa expansion.

"Peter's task will be to drive our existing strategy, so that the continent's share [outside of South Africa] rises to 25% of revenues and operating profits in the next five years," says Ben Kruger, deputy chief executive of Standard Bank.

First movers

"They certainly have the first-mover advantage in terms of South African banks," says Macquarie First South Securities analyst Charles Russell.

"While [Standard Bank] prefer to grow organically, they tend to front-load the growth by acquiring small operators and then building out – like they did in Nigeria," says Russell.

The bank bought IBTC Chartered Bank in Nigeria in 2007, then quickly built 200 branches.

Standard Bank's executives are quick to point out they will not be throwing more money at the opportunity.

"We've spent time to ensure that each entity is adequately capitalised," says Kruger.

"Capital has been allocated in Zambia and Mozambique, and we are currently raising capital in Kenya. After that, we don't expect allocating any further capital – the businesses will be generating enough cash to fund the growth going forward."

Other banks have been more cautious. ABSA – which has banking operations in just two countries: Mozambique and Tanzania – is negotiating to take control of the operations of parent company Barclays, which is present in eight countries on the continent.

"This will add significant scale, as those operations are more profitable than Standard Bank's entire Africa operation," says Russell.

The deal is awaiting regulatory approval. If approved, the Barclays operations will then fall under and report to ABSA, though the banks will retain the Barclays name.

In September, First Rand's investment banking arm, RMB, struck out on its own by applying for a licence to operate in Nigeria as a means to exploit increased trade flows between the two countries.

"While FirstRand are not instantly recognisable in the nine countries they operate in, they have proven to be extremely innovative," says Russell.

"They also take a cautious approach to expansion, buying banks that enhance returns on equity, and elect to grow with the bank at a natural rate."

The last of the Big Four out of the blocks has been Nedbank, which has a presence in four countries. In March 2012, the bank acquired the right to a 20% stake in Togo-based Ecobank, a bank with operations in 36 African countries.

It is not just the Big Four that see the potential in the continent – smaller operators like Blue Financial Services have been getting involved, too.

The group has operations in 12 African countries with more than 1,000 points of distribution for their microfinance products.

"At the moment, we are making sure each trading entity [in each country] is properly capitalised," says CEO Johan Meiring. Is he worried about competing with the larger players?

"We'll position Blue differently to the main street banks, but Africa is a big market and there is space for everyone." ●