Standard Chartered claims unwavering support for Africa

By Kanika Saigal
Posted on Tuesday, 14 June 2022 12:55, updated on Thursday, 16 June 2022 14:07

People pass by the logo of Standard Chartered plc at the SIBOS banking and financial conference in Toronto, Ontario, Canada October 19, 2017. REUTERS/Chris Helgren

Standard Chartered has built a reputation as an emerging-market banking champion: a bank that prides itself on its business across Asia, Africa and the Middle East.

Its tagline ‘We’re here for good’ may refer more to the bank’s hope to be a driving force for positive and sustainable change across its key geographies.

However, given the recent announcement that the bank plans to fully withdraw from Angola, Cameroon, Gambia, Jordan, Lebanon, Sierra Leone and Zimbabwe and close its Consumer, Private and Business Banking (CPBB) business in Tanzania and Cote d’Ivoire, the phrase has become steeped in irony.

“It was one of the toughest decisions the bank has ever had to make,” says Sarmad Lone, head of Corporate, Commercial and Institutional Banking (CCIB), Africa & Middle East at Standard Chartered Bank.

The CCIB boss has travelled from his base in Dubai through key cities in mainland Europe before making his way to London. Next on the agenda, will be a whistle-stop tour around the US, where Lone and the CCIB team will engage with the bank’s key clients and to assure them of Standard Chartered’s continued and unwavering commitment to the African continent.

For Lone, the reason behind the withdrawal is set within the bank’s strategy to deliver efficiencies, reduce complexity, and drive scale in the other markets where they operate. “We’ve announced those set of actions to redirect resources within the region to those areas where it can have the greatest scale and growth potential,” he says. “It is so we can better support our clients.”

Cost of retail

It is no secret that retail banking in Africa’s 54 fragmented countries can be difficult and expensive. This, combined with higher capital requirements for international banks in their home markets, means that retail banking is no longer feasible for some international players, hence the gradual pullback of international players in smaller, frontier economies.

“Since 2008, we have seen several larger international banks pull out of sub-scale business in emerging markets,” says Adesoji Solanke, director, frontier banks and fintech at Renaissance Capital.

“In Africa, a bank will usually need to carve a niche for itself in low capital requirement businesses – say in asset management or securities trading – to offset the drag of the retail banking business; or you need to be a top tier player in each country, with lower costs of funding from retail customers and high-quality assets – which you get from lending to high quality corporates and government.”

“Otherwise, retail banking just won’t add up,” he says.

Then there’s the competition from telcos in Africa – many of which already have the scale and infrastructure to attract low-value deposits. “Telecoms companies in Africa don’t have the baggage of a traditional retail bank and the average channel cost is a fraction of that of a retail bank,” says Solanke.

Lower earners are more likely to deposit with a telco versus a retail bank in any case

MTN and Airtel both have large mobile money operations across the continent with 58 million and 26 million mobile money customers respectively. “Given agency banking is a lower cost and easier accessible channel than brick and mortar branches of a traditional retail bank, lower earners are more likely to deposit with a telco versus a retail bank in any case,” says Solanke.

Fintechs also have a role to play. Start-ups like Opay, Paga, TeamApt, Chipper Cash and several others are creating a new financial ecosystem in Africa, driving new ways to transact across the continent.

“I wouldn’t say that a bank like Standard Chartered would be forced to close its retail banking business because of a fintech company, but the costs of delivering a full-service retail bank with strong tech capabilities may be too high, especially when there are so many alternatives emerging,” says Solanke.

Meanwhile, several other international banks have pulled back from doing business in Africa. In February of this year, Credit Suisse announced that it would close its wealth management business in Botswana, Côte d’Ivoire, Ghana, Kenya, Mauritius, Nigeria, Seychelles, Tanzania, and Zambia. Around the same time, BNP Paribas announced it would sell its stake in Banque Internationale pour le Commerce et l’Industrie du Sénégal (Bicis).

In January this year, Citi announced that the bank would be selling its consumer banking businesses in Indonesia, Malaysia, Thailand and Vietnam to United Overseas Bank and its business in Taiwan to DBS. In March this year, the bank announced the sale of its consumer businesses in India to Axis Bank and then in April, it sold its consumer business in Bahrain to Ahli United Bank. UK-based Barclays PLC left Africa entirely, selling its stake to Absa Bank.


However, it is not all closures. Standard Chartered has made a couple of strategic plays in the Middle East and North Africa. In June 2021, Standard Chartered opened a branch in Saudi Arabia, and the bank has been awarded preliminary approval for a banking licence in Egypt.

The bank has, according to some sources, been looking to set up shop in Saudi Arabia for the last 15 years. It makes sense. “Saudi Arabia is probably bigger than all the markets that the bank plans to exit in the Middle East and Africa combined,” says one London based economist. GDP per capita in Saudi Arabia is over $20,000 whereas in Sierra Leone, it’s less than $500.

Either you’re big and have some market power, or you’re not

The fact that the bank opening in Saudi Arabia coincided at the same time the bank announced a number of withdrawals was perhaps little more than coincidence, and not a signal that the bank is pivoting away from Africa towards the Middle East. Indeed, the bank also announced the opening of a new $40m head office in Zambia and continues to invest in digital capabilities across the region, says Lone.

It all makes sound business sense. Arguably, Saudi Arabia is a larger market than all the markets the bank plans to exit in Africa and the Middle East combined. Setting up a new head office in Zambia, which is currently benefiting from the political dividends of the recently elected Hakainde Hichilema has sent positive signals across the region. Smaller, niche markets, such as Gambia and Sierra Leone, are perhaps not worth it.

“Standard Chartered is trying to focus its business lines on bigger more profitable areas,” says the London based economist. “And [it] seems to make sense. Either you’re big and have some market power, or you’re not. What’s unfortunate is if [it is] profitable – but small – business lines are cut.”

As Lone says: “We are proud of our presence in the Africa and Middle East Region and remain committed to serving our many clients in the region.”

Big ticket business

According to Standard Chartered’s latest financial report for the year 2021, underlying profits before tax for CCIB in total increased 54% to $3.12bn and return on equity increased 370bps to 9.6%.

In CPBB – of which retail banking is a part – underlying profits before tax grew 51% to reach $1.07bn and ROE increased 330bps to 10.2% over the same period. The bank’s CCIB business is nearly three times more profitable than the bank’s CPBB business.

Without a retail banking presence in certain African countries, Standard Chartered will be limited in what it can do given the fact that some local and regional business will require local licensing, custody, security services, trade finance and cash management services that need on the ground retail presence.

CCIB, on the other hand, can be conducted across the continent through regional hubs. Given the big tickets associated with large corporations and institutions, the business is very lucrative. “We will continue to work with the governments and large corporates through CCIB,” says Lone.

“Working on a big-ticket deal in Africa doesn’t come with a cheaper price tag compared to that in the US or Europe,” says one banker at a local African bank.

“Corporate and investment banking in Africa will always be an attractive proposition,” they say.

While investors may stay on the side lines for now, let’s not forget they will come back just as quickly

There is a lot of corporate and investment banking to be done. To shore up cash, several African sovereigns have renewed IMF deals and restructured existing debt – but some have also been able to return to the global bond markets on relatively good terms.

In March, Nigeria issued a seven-year $1.25bn Eurobond with a yield of 8.375% and Angola’s ten-year $1.75bn fixed bond was over two times oversubscribed and priced to yield 8.75%.

South Africa successfully sold $3bn worth of Eurobonds at 5.875% coupon for the ten-year and 7.300% for the 30-year bond. Most were issued with higher rates than equivalent bonds in previous years.

Seeking support

Indeed, sovereigns and large businesses need support now more than ever. With the global economic downturn triggered by the Covid-19 pandemic and exacerbated by the Russia-Ukraine conflict, emerging market governments and corporates are in dire need of cash as capital flows to safer, more developed economies.

“Airlines – especially those that have hedged against fuel prices – are making a comeback as tourism returns to Africa,” he says. “And in line with this trend, hospitality is also doing much better, so these are industries for us to watch.”

Nevertheless, interest rates are something that need to be monitored closely, he says. “If they reach unsustainable levels, this means that purchasing power drops and consumers stop spending, delaying their next car purchase, a home upgrade or household items, and this will have an impact on business.”

But things are getting better, says Lone. “While investors may stay on the side lines for now, let’s not forget they will come back just as quickly.”

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