Africa's banks spread their wings

JOHANNESBURG Fri Apr 12, 2013 3:02pm EDT

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JOHANNESBURG (Reuters) - It took Kenyan lender KCB Group (KCB.NR) less than a year to break even after opening in tiny Burundi, a country better known for explosive violence than explosive growth.

KCB's success highlighted the hunger for financial services that the biggest local banks are turning regional to tap.

Stretching beyond home markets, they are morphing into formidable competition for established international lenders - and becoming potential acquisition targets for outsiders seeking a foothold on the fast-growing continent.

"It's an incredibly exciting phase," said Diana Layfield, Standard Chartered's chief executive for Africa, where the global bank has worked for over 150 years.

"What you have seen, particularly in some of the newer local regional banks, is an ability to serve emerging mass market consumers where other financial institutions haven't necessarily been able to cover effectively," she told the Reuters Africa Investment Summit this week.

Despite being in Africa for so long, foreign headquartered banks such as Standard Chartered (STAN.L) and Barclays (BARC.L) have tended to focus on businesses and the wealthiest.

African banks are seeing more opportunities at the lower end of the market. Innovations such as mobile banking offer them the chance of getting access to more people more quickly than ever.

KCB opened in Burundi in 2012, bringing the number of its east African operations to six. Equity Bank (EQTY.NR), its bigger rival by market capitalization, is in five countries and is also eyeing southern Africa.

On the opposite side of the continent, Nigeria's Guaranty Trust Bank (GUARANT.LG) announced plans this week to make acquisitions in three east African countries. The $4.4 billion bank already has six operations outside its home market.

South Africa's "Big Four" are also building up to the north - the biggest, Standard Bank (SBKJ.J), operates in 18 African countries.

While there is an average of pretty much one deposit account for every South African, according to the latest World Bank data, that falls to fewer than 220 accounts per thousand people in Burundi, a 2012 survey showed.

POTENTIAL TARGETS

Growth can be dramatic. Between 2006 and 2009, the number of accounts in Burundi's neighbor Rwanda grew more than 20-fold.

Present in the largest number of countries is Togo-based Ecobank Transnational (ETI.LG), a $1.6 billion lender with branches in 32 nations and plans to enter five more.

It was that wide presence which drew South Africa's state pension fund manager, Public Investment Corporation (PIC), to pay $250 million for a stake of nearly 20 percent in 2012.

"It's African pride to be able to start an African institution from scratch and grow it to compete with large global entities," said Elias Masilela, PIC's chief executive.

Although often still a straightforward deposit and loan business, African banking is starting to draw the attention of private equity firms and pension funds as well as overseas banks seeking access to some of the world's fastest growing markets.

Carlyle Group (CG.O) is hunting for financial services acquisitions in both west and east Africa, according to the private equity firm's Africa co-head.

"Less than one in four people across sub-Saharan Africa have a bank account or have access to formal financial services," Marlon Chigwende said. "We are looking at ways of participating in that space."

Although Africa's poorest are so far little touched by the financial services sector, some countries have no shortage of banks. Most of Tanzania's 43 million people have no bank account, for example, but their country has more than 50 banks - focused largely on a small urban elite.

That fragmented banking sector makes it ripe for consolidation, Standard Chartered's Layfield believes.

"In any market a decent bank is a potential target," she said.

(For other news from Reuters Africa Investment Summit, click here)

(Additional reporting by Duncan Miriri in Nairobi and Chijioke Ohuocha in Lagos; Editing by Matthew Tostevin)

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