Access Bank faces tough competition in South Africa venture
Nigeria's Access Bank PLC faces tough competition from incumbents as it ramps up operations in South Africa, but it could find success in niche markets.
On May 27, Access renamed its recently acquired unit Grobank Ltd. as Access Bank South Africa Ltd. At a press conference to mark the rebranding, the unit's managing director, Bennie van Rooy, said the bank would launch a "full retail banking suite" and highlighted opportunities to provide trade finance, treasury services, loans and international payments to corporations.
Access Bank has long had subsidiaries scattered across sub-Saharan Africa, but they have not been key priorities. Such was the scale of the opportunity in Nigeria that it made little sense for the country's banks to invest much in their foreign subsidiaries when they could make more money on a single domestic deal, said Ronak Gadhia, director of research on sub-Saharan African Banks at EFG Hermes.
In the first quarter, Access' operating income from Nigeria totaled 180 billion Nigerian naira, or $437 million, compared to 26 billion naira from the rest of Africa, S&P Global Market Intelligence data shows.
But unfavorable regulatory changes have spurred Nigeria's major banks to again focus on boosting their foreign operations. The central bank has increased cash reserve ratio requirements, meaning a large chunk of banks' balance sheets are sitting in cash earning nothing, while other reforms have limited certain bank fees, Gadhia said.
Access Bank, which aims to expand its customer base to 100 million by 2022, has recently bought banks in Mozambique and South Africa; including the latter, its African footprint now spans 10 countries. It also aims to launch operations in Guinea in 2021 and is acquiring a bank in Botswana.
Aside from Access' Ghana unit, whose 2020 pretax profit rose 58% year over year to 23.4 billion naira, its other African subsidiaries made a combined annual pretax profit of 5.11 billion naira - 4% of the group total, according to Market Intelligence calculations.
About a decade ago, rivals Ecobank Transnational Inc., headquartered in Togo, and Nigeria-based United
Bank for Africa PLC followed a similar strategy of buying units across Africa to expand their footprint. But, Gadhia said, they did not commit sufficient capital to achieve a workable size of operations.
"If you don't commit capital, it's hard to achieve scale," said Gadhia. "Subscale operations typically aren't profitable, which is what we saw with UBA and Ecobank's subsidiaries. It's taken them the best part of 10 to 12 years to start generating substantial profits from some of their subsidiaries."
Gadhia said the amount Access is committing to its foreign operations is "way too low." Access will compete against South Africa's big four banks - Standard Bank Group Ltd., FirstRand Ltd., Absa Group Ltd. and Nedbank Group Ltd. This quartet dominate the sector in terms of earnings and assets, although smaller rival Capitec Bank Holdings Ltd. has the most customers.
"The South African banking sector is highly competitive, and it has proved difficult for challengers to grab market share from the big four," said Adrian Saville, professor and director of the Centre for African Management.