FirstRand, Equity Bank and GTB… Africa’s top banks bounce back

By David Whitehouse
Posted on Thursday, 8 April 2021 20:57, updated on Monday, 19 April 2021 16:16

Equity Bank's Chief Executive Officer James Mwangi is seen during a Reuters interview in Nairobi
Equity Bank's Chief Executive Officer James Mwangi in Nairobi, Kenya November 11, 2020. REUTERS/Jackson Njehia

African banks that have raised their loan-loss provisions to reflect the impact of Covid-19 may be best placed for a quick recovery once the worst of the pandemic is over, analysts say.

Research from McKinsey says that in South Africa and Kenya, banks have already increased loan-loss provisions by more than 200% since 2019 and so may see improved results in 2021. But McKinsey argues that banks in Nigeria may still need to further increase provisioning levels in 2021.

We spoke to local analysts who picked out possible winners in losers in each of these three markets.

South Africa

South Africa’s highly regulated banking system helped it to enter the pandemic crisis with better balance sheets than was the case during the financial crisis which began in 2008, says Dudu Tembo, portfolio manager at Argon Asset Management in Cape Town.

New accounting standards for impairments have helped ensure that banks have provisioned generously for the possibility of poorly performing loans, and growth in lending prior to the pandemic was already muted due to South Africa’s poor economic performance, she says.

“Banks have demonstrated their resilience and even though we saw precipitous falls in earnings, none of the banks reported a loss. Barring something catastrophic, all banks should weather this storm.”

FirstRand has best provision coverage along with Absa following, Tembo says.

  • “Absa is clawing back market share lost whilst still in the Barclays stable. Normalisation in the retail bank should result in strong revenue growth. Cost management is also strong,” Tembo says.
  • FirstRand has “agile” management, superior capital allocators and consistently reports the best return on equity of South Africa’s ‘big four’. “I think they could be very well placed for recovery.”
  • Nedbank is in the weakest position among South African banks, as it has the lowest capital levels and the highest share of corporate loans relative to its total loan book, Tembo says. “Even though corporate defaults tend to be few, when they do happen they are typically big in quantum.”


“Kenyan banks have pumped up provisions which is a good buffer and if they start to wind down the provisions you would see a huge increase in pre-tax profits,” says Reginald Kadzutu, a financial analyst at Amana Capital in Nairobi.

It is important to bear in mind the low base effect caused by a poor 2020, Kadzutu says. But most banks in Kenya are heavily invested in government securities, which helps to reduce risk, he adds.

  • The best bet in Kenya is Equity Group due to its diversification, return on assets and liquidity. These factors position them as a “good long-term buy”.
  • Equity Group operates Banque Commerciale Du Congo (BCDC) in the Democratic Republic of Congo (DRC).
  • Equity Group’s profit after tax fell just 11% in 2020. Key to that performance is digital banking, with mobile and internet channels accounting for 84.4% of all transactions by total in 2020.
  • In value terms, physical branches accounted for 37.4%. “This highlights the transformation of branches to handle high-value transactions,” according to Cytonn Investments in Nairobi.
  • Cytonn rates the shares a buy based on modest price-to-book and price-to-earnings ratios of 1.2 and 7.3 as of 1 April.


Oil price volatility can be a wake-up call to Nigerian banks that they need more diversification in their lending and better risk management systems, says Nkemdilim Nwadialor, an equity analyst in Lagos. “The banks have to start to think about ways to reduce their exposure to oil and gas,” says Nwadialor.

  • The best job in terms of diversification, Nwadialor says, has been done at Guaranty Trust Bank, which has strong offers in pay-day loans and lending to small and medium-sized enterprises (SMEs). The bank “stands out in terms of retail strength,” she says.
  • Access Bank has also improved its position as a result of the purchase of Diamond Bank, which has a developed retail loan portfolio, she adds.
  • Virtually all banks in Nigeria have had to revise their non-performing loan (NPL) provisions, some increasing the 2019 provisions by as much as three times in 2020, Nwadialor says.
  • Yet First Bank of Nigeria’s provisions only cover about 50% to 60% of NPLs, while the level at Ecobank Transnational Inc. (ETI) is about 70% to 75%, she says.
  • First Bank, she says, was underperforming in terms of revenue and return on equity even before Covid-19. While the bank has made progress, its loan book is a “major concern.”
  • ETI, she argues, had “terrible results” in 2020 and finds itself in a “precarious situation”.
  • Wema Bank is a second-tier bank with a cost-income ratio of about 80%, which needs to be substantially reduced, Nwadialor says.

Some analysts question whether low levels of provisioning to date are a bad sign or whether they reflect better business models. “A popular idea is that banks that report higher loan-loss provisions are being more conservative and will benefit greatly from writebacks when the going is less stressed,” says Paul Hollingworth, managing director at Creative Portfolios in London. “I think one needs to be careful of this over-simplification.”

Nwadialor argues that it would not cost much for banks with low reported levels of NPLs to keep them fully provisioned. Provisions should be at least 90% to 100% of the problem loans, she says.

Most Nigerian banks have been able to keep NPLs in the range of 5% to 7% of their loan portfolios, but there is an element of “regulatory forbearance” in this, she says. “It could be much worse for a lot of banks” and the published rates of NPLs may be slow to come down once the worst of the pandemic is over.

Bottom line

Banks that have taken the Covid-19 hit in their provisions and developed their digital strategies have the brightest futures.

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