The emerging market debate about the relative strengths of local and international banks is decades old. But in 2017 the advantages of the locals have never been clearer, thanks in part to developed-market regulation but above all to local growth. This is especially evident in the various facets of Barclays’ exit from Africa, as this magazine’s newly launched sister publication, Euromoney Africa, reports.
For Barclays, Africa is a lost avenue for growth and returns. The maintenance of a residual stake in Barclays Africa (the 14.9% maximum allowing regulatory deconsolidation) might hint that the London-listed parent is not totally dismissive of African banking’s prospects, even if the sell-down’s timing in the middle of a commodities crisis suggests otherwise.
There is still a role for a few international banks in emerging markets, typically Citi and HSBC – although Standard Chartered and Société Générale are much stronger than HSBC in Anglophone and Francophone Africa, respectively. Barclays’ African network, likewise, has benefited clients outside Africa, just as Barclays Africa (or Absa, as it might come to be known) has benefitted from a global network. The two will partner on international business after deconsolidating, chief executive Maria Ramos strongly hints to Euromoney Africa.
Fundamental disadvantages
However, especially in retail, where the business and risk is more domestic in character, there are fundamental disadvantages to being tied to the culture and systems of a global bank. Africa today is an exceptionally tough environment for traditional retail networks. Local lenders have found better ways around these challenges. Partly thanks to a permissive regulatory framework for mobile banking, this is particularly evident in Kenya, where Barclays and Standard Chartered are big and old banks but no longer the best.
Regional banks can serve local corporates better, too. As Attijariwafa Bank integrates what was Barclays Egypt, it will lose some international clients because the Moroccan sovereign constrains its counterparty rating. That is no great loss for those clients, however, who will find alternatives. Co-CEO Ismail Douiri says Attijariwafa can nevertheless lend to interesting local projects that might not have been worth evaluating by Barclays.
Losing ground
Commentary about Barclays’ exit often misses the extent to which the recent relationship between it and Africa has been more to the detriment of the latter, especially in South Africa. Ramos and others will naturally contend this, but the South African Reserve Bank’s Kuben Naidoo thinks that Barclays has constrained Absa since its 2005 purchase. While Barclays may argue it has improved Absa’s wholesale business, it has lost much more ground in South African retail: still its most important sector.
This is not just a South African quirk, or a product of Barclays’ specific group challenges. Local banks serve local needs better, especially in emerging markets. Barclays, SocGen or Standard Chartered may have widened their franchises in Africa over the years, but they naturally tend to focus on top-end retail and international corporates – as any bank might do abroad. They will also rely less on the local interbank market. The development of Africa’s banking sector and, by extension, its economy therefore takes place primarily via African lenders.
It will be interesting to follow the success or otherwise of African banking platforms recently founded by international players, notably Arise (by Rabobank, FMO and Norfund) and Atlas Mara (by Bob Diamond). They have the local focus, but do they have the local touch?