Banking for Africa’s Growth: The Contribution of Financial Institutions to Economic Development
The COVID-19 pandemic has significantly reshaped the global financial landscape, with digitalisation emerging as a pivotal force. In their efforts to recover from the pandemic’s impact, banks globally have drifted from traditional banking practices towards data-driven, digital models. The shift is driven by the rising need for immediate and tailored services, leading to many customer interactions moving exclusively online. While these transformations were already underway, the pandemic accelerated the adoption and demand for digital financial services.
The widespread adoption of digital financial services has not only enabled banks to streamline their operations and improve efficiency but has also played a crucial role in broadening financial inclusion. By overcoming geographical barriers and reaching previously underserved communities, digitisation has made access to financial products and services more democratic, fueling economic growth and social development in the region.
Throughout Africa, the expansion of banking services continued to accelerate in 2022, largely driven by the popularity of mobile money and digital banking. Nearly half of Africans gained access to digital banking in 2022. However, a significant portion of the population remains unbanked, despite expectations for rapid growth in the financial services industry, which is projected to generate $230 billion in annual revenue by 2025.
Standard Bank Group, headquartered in Johannesburg, South Africa, is known as Africa’s largest bank, boasting a 161-year history of operational excellence and value creation. Committed to leveraging its expertise and deep understanding of African markets and communities, the bank endeavours to foster sustainable and inclusive economic growth across the continent. Established in 1862, the bank provides a comprehensive range of services including transactional banking, savings, lending, investment, insurance, risk management, wealth management, and advisory services. Its corporate and investment banking arm caters to governments, parastatals, large corporations, financial institutions, and international entities. Among its prominent subsidiaries are The Standard Bank of South Africa, Standard International Holdings, Stanbic IBTC, and Liberty Holdings.
Source: Standard Bank Group Financial Report (2023)
During the fiscal year ending December 31st, 2023 (FY23), the group achieved headline earnings of R42.9 billion ($2.34 billion), marking a 27% increase compared to the same period ending on December 31, 2022, and realised a return on equity (ROE) of 18.8% (FY22: 16.3%). This notable performance was attributed to the robust and expanding franchise of the group and reflects the positive momentum within its business operations. The Africa Regions segment contributed 42% to the group’s headline earnings, with significant contributions from Ghana, Kenya, Mauritius, Mozambique, Nigeria, Uganda, Zambia, and Zimbabwe, the top eight contributors to Africa Regions’ headline earnings.
The group effectively fortified and expanded its banking operations while enhancing banking earnings and returns in 2023. The health of the client franchise exhibited improvements across multiple indicators. Active customers increased by 6% to reach 18.8 million, with growth observed in South Africa and its top 8 contributors across the African regions. Furthermore, the number of digital retail clients in South Africa increased by 8%, reflecting a greater adoption of convenient digital channels. In 2023, the group witnessed a notable increase in digital transactions for retail clients, totalling over 2.8 billion, marking a 30% year-on-year rise, and facilitated over R41.1 billion ($ 2.24 billion) on behalf of its South African clients through the digital wallet platform. Client satisfaction scores saw enhancements across various channels, particularly in digital services within South Africa.
Over the five years from 2019 to 2023, the bank’s financial performance exhibited notable trends across key metrics. Operational efficiency, reflected in the cost-to-income ratio, demonstrated consistent improvement, with a decline from 58.20% in 2019 to 51.4% in 2023, indicating effective cost management strategies. However, profitability, as measured by Return on Equity (ROE), experienced fluctuations. ROE declined sharply from 16.80% in 2019 to 8.90% in 2020, signalling challenges, but steadily recovered to 18.8% by 2023, indicating a robust rebound.
Over the past five years, dividend payouts have exhibited considerable fluctuations, declining notably from 56.00% in 2019 to 24.00% in 2020, followed by a period of stabilisation and minor fluctuations in the ensuing years. The decreased payout ratio in 2020 was primarily attributed to the absence of dividends being distributed during the first half of the year, in alignment with directives from the South African Reserve Bank. In terms of financial strength, the Common Equity Tier 1 (CET1) ratio showed minor fluctuations, ranging from 14.00% in 2019 to 13.7% in 2023, indicating overall stability. Similarly, profitability relative to risk-weighted assets, measured by Return on Risk-Weighted Assets (RORWA), initially declined from 2.80% in 2019 to 1.40% in 2020 before rebounding and reaching 2.9% in 2023, indicating resilience and adaptive strategies. These figures collectively portray the bank’s dynamic financial trajectory, characterised by improvements, challenges, and ultimately, resilience over the five years.
Banking inherently demands meticulous risk management. Assessing a bank’s resilience amidst credit, market, and operational challenges often involves scrutinising its capital adequacy ratio, particularly concerning Tier 1 and Tier 2 capital concerning its overall risk-weighted assets (RWA). Additionally, critical indicators of risk include evaluating the proportion of non-performing loans (NPLs) relative to the total loan portfolio size and the adequacy of provisions set aside for such loans. These parameters collectively provide insights into the bank’s risk exposure and its ability to mitigate potential adverse impacts.
As the Standard Bank Group continues to drive Africa’s economic empowerment and sustainability, its dedication to fostering growth, advancing renewable energy projects, and strengthening regulatory frameworks is pivotal in shaping the continent’s banking landscape. Through collaborative efforts with various stakeholders, the bank’s commitment to achieving its 2025 objectives not only ensures financial success but also contributes significantly to the socio-economic development of Africa’s diverse communities and economies.
References
- Financial report (2023). Standard Bank Group
- The coming years for African banks (2023). African Business
- Leading countries in African Banking Industry (2023). Statista
- Oanda Currency Converter (2023)
- How banks are responding to Africa and the Middle East’s evolving financial needs article (2023). International Banker
- African Banking: The Productivity Opportunity (2022). McKinsey & Company.
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