On the occasion of the 4th edition of Africa Day, the annual meeting of the Club des Entrepreneurs Monégasques en Afrique (Monaco Entrepreneurs Club in Africa), Paul Derreumaux, Honorary President of Bank of Africa and a privileged observer of African financial systems, delivered a detailed analysis of the dynamics transforming the continent’s banking sector. Here, he looks back at the historical evolution of African institutions and the new forces that will shape the next decade.
The African banking system is based on three distinct groups. The first, South Africa, has long dominated, although today only one of its institutions still ranks among the continent’s top three. The second is made up of North African banks from Algeria, Egypt and Morocco, with Moroccan groups that have long been established and several Egyptian institutions, two of which have just taken their place on the top three. Finally, a third group comprises sub-Saharan banks, several of which are based in Nigeria. This last group is the youngest, but it is gradually asserting itself and occupying an increasingly important place in the overall balance of the sector.
The history of sub-Saharan banks has been marked by a series of profound transformations. It all began in the 1980s, when a systemic banking crisis hit the continent. Public development banks were hit hard and many of them disappeared. Foreign players, mostly British and French, halted their expansion strategies. This context triggered the emergence of a new generation of private institutions with African capital, often born out of asset acquisitions, as in Nigeria, Kenya and Ghana, or created from scratch, as in French-speaking Africa. It was during this period that groups such as Ecobank and Bank of Africa were founded.
The 1990s and the first half of the 2000s were then marked by a very favourable dynamic. Economic growth was sustained, a climate of ‘Afro-optimism’ prevailed, and monetary authorities significantly strengthened supervision and prudential requirements. Banks consolidated their positions in their domestic markets, while in monetary unions such as the WAEMU and CEMAC, the first regional architectures structured around subsidiaries in several countries began to emerge.
From 2005 onwards, a new phase began with the gradual opening up of African markets. Moroccan banks established themselves in West Africa, Nigerian groups gained ground in French-speaking Africa and East Africa, and several Western players began to withdraw. The reshaping of the landscape became visible across all regions.
The following years saw the gradual rise of sub-Saharan banks. While the economic context slowed in some areas, hampering the expansion prospects of North African and South African groups, sub-Saharan institutions found new sources of growth, particularly in West Africa.
We are now entering a new period, marked by a sharp tightening of capital requirements. The change is spectacular in Nigeria, where the minimum capital requirement for international banks has risen from 25 to 500 billion naira, or approximately £300 million. Egypt is adopting similar measures, while Ghana, Kenya, the DRC and several other jurisdictions are also raising their requirements. Even the WAEMU, traditionally more stable in this area, has begun a review of its thresholds. This regulatory trend is ushering in a new phase that is already influencing the strategies of market players.
This movement will inevitably accelerate consolidation in the sector. The strongest and best-governed institutions will be able to meet the new thresholds, while others will have to consider mergers or capital increases. Ultimately, the strengthened prudential framework will help to increase the resilience of national banking systems, improve risk management and make African markets more attractive to international investors.
Yes, but it will undoubtedly be more selective and structured than previous waves. Players capable of raising the necessary capital will have the means to consider regional or continental expansion. Certain areas, particularly French-speaking West Africa, will continue to attract groups seeking growth. The most advanced sub-Saharan banks now have sufficient maturity and resources to project a strategy beyond their historical borders.
The African banking sector, particularly in sub-Saharan Africa, has entered a new phase of change. Increasing regulatory requirements, the growing professionalism of players and shifting regional balances are ushering in a period of profound transformation. This could lead to a more robust and integrated banking system that is better equipped to support the continent’s economic ambitions. To achieve this, banks, and above all the most powerful ones, will have to effectively address the challenges that remain. Strengthening their role in supporting the economy, improving financing for small businesses and housing, and facing competition from new players in the field of payment methods will be among the priorities.
