Leading global banking practices Emilio Pera, May 203!@#
Agenda Banking in Africa 2 Global Banking Outlook 3 Questions/discussion 2
Africa Attractiveness Getting down to business!@#
How Infrastructure needs will change the banking landscape Top 0 African destination countries for infrastructure projects, up to February 203 No. of projects Capital invested US$bn South Africa 34 29,9 Nigeria 06 95,5 Egypt 82 60,2 Uganda 63 7,7 Kenya 60 32,8 Algeria 34 87,2 Mozambique 3 32, Libya 29 20,7 Tanzania 29 6,2 Cameroon 25 8,5 Source: Africa Project Access, Business Monitor International; Ernst & Young analysis A number of the top FDI destinations still have very small banking markets South Africa Nigeria Angola Mauritius Kenya Ethiopia Namibia Botswana Mozambique Gabon Ghana Senegal Cote d' Voire Tanzania Cameroon Uganda Zambia Zimbabwe Madagascar Malawi DRC Swaziland Rwanda Lesotho Togo Total banking assets $ bn 7 6 6 6 5 4 4 4 3 3 3 2 2 0 9 8 26 8 47 6 57 The combined effects of rising infrastructure spend, coupled with stronger employment levels, will stimulate greater financial inclusion and will provide a strong growth stimulus for banking. 4
FDI will similarly stimulate banking growth FDI CAGR 2007 202 Ghana 50.8% DRC 47.6% Kenya 43.% Cote d'ivoire 43.% Tanzania 38.9% Mozambique 33.0% Zambia 55.2% Zimbabwe 30.6% Cameroon 24.6% Nigeria 23.4% Many countries with strong FDI inflows over the last five years have small banking sectors. South Africa Nigeria Angola Mauritius Kenya Ethiopia Namibia Botswana Mozambique Gabon Ghana Senegal Cote d' Voire Tanzania Cameroon Uganda Zambia Zimbabwe Madagascar Malawi DRC Swaziland Rwanda Lesotho Togo Total banking assets $ bn 6 6 6 5 4 4 4 3 3 3 2 2 0 9 8 7 26 8 47 6 57 The combined effects of rising foreign investment, coupled with rising employment levels, as FDI leads to greater financial inclusion will mean stronger growth stimulus for banking. 5
Growth in Africa s banking market Angola Mauritius Kenya Namibia Ghana Botswana Uganda Nigeria Tanzania Africa Top 00 banks CAGR 2007-20 44% 29.5% 29.5% 24.5% 2% 20% 9% 5% 3.% 90% South Africa 7.5% Source: Thebankerdatabase.com 6
Africa has an unbanked population in line with other key emerging markets Bank account penetration (Percentage of adults with a bank account) China 64 Brazil 56 South Africa 54 Kenya 42 India 35 Nigeria 30 Egypt 0 7
Innovation goes hand in hand with greater client centricity Customer service is not considered key to a bank s innovative status. However, banks with a strong innovation focus are able to benefit their client base through enhanced product and service offerings. It could be argued that the more innovative the bank, the higher its returns FNB has outperformed its peers since the GFC. 30 ROE % 25 20 5 0 5 0 2H07 H08 2H08 H09 2H09 H0 2H0 H 2H H2 Absa Firstrand Nedbank Standard Bank Source: Innovation Agency 200, EY calculations 8
Global banking outlook 203-204!@#
Opportunities and challenges - 0 key points for banks to consider. Environment accept, adapt Sub 0% ROE; Customers continue to need banking services but are starting to look beyond banks to alternative providers; Banks recognise that incremental change is no longer an option Innovate: Banks should learn from experience of other sectors e.g. Media and utility sharing infrastructure. 2. Reputation restore protect LIBOR and anti-money laundering issues in 202 Reputation needs to be restored with both investors and customers Assessing new product opportunities in the context of public perception, shareholder benefit and reputational risk should become the norm. Be proactive not reactive in managing business conduct. 0
Opportunities and challenges - 0 key points for banks to consider 3. Culture, behaviour, reward alignment Boards and senior management recognise that a cultural shift is required, but effective communication of the vision is required, especially if these initiatives would involve cutting of costs or personnel Balancing trick will be to deliver a new approach reflecting financial realities of the organisation yet provide incentives to protect the franchise. 4. Customer requirements, expectations Structural dynamics across segments are changing and as banks effect behavioural change within the bank, they should incorporate shifting customer requirements and expectations Traditional banks should make a greater effort to engage successfully with customers, including via social media Agility is key for future success.
Opportunities and challenges - 0 key points for banks to consider 5. Product mix/product dilemma With cost-income ratios remaining stubbornly high, tough decisions needs to be taken Banks are disposing of businesses where they don t have a strong reputation ad competition intensifies and margins are squeezed Partnerships are considered as banks strive to continue offering full service capabilities Local regional banks are emerging as strong competition as they build out capabilities to exploit trade-flow opportunities 6. Pricing old challenges, new models Cost of securing funds to lend are continually increasing compounded by capital charges imposed by Basel III Pricing models differ significantly across markets and pricing models are still dependent on cross-selling. With most customers becoming multi-banked, those old models cease to add up As competition intensifies, customers become less loyal and alternative providers enter the market there is clear opportunity for differentiation 2
Opportunities and challenges - 0 key points for banks to consider 7. (Re)Structure Operating models and structures are no longer suitable as old structures are too expensive and has to be rationalised for some, whilst expanding banks will require more formal systems and procedures (both will be influenced by regulatory requirements) Banks should see this as an opportunity to reshape the organisation to better fit the organisation and reduce cost and improve efficiency Outsourcing and off-shoring will continue, but regulators are becoming more cautious of concentration risk 8. Location Physical, virtual Banks that invested heavily to build a global footprint are now poised to abandon much of that as new regulations take effect Retail banks will see significant expansion in Rapid Growth Markets. The branch experience will evolve with most customers preferring a self-service approach for basic transactions, but expect personal contact for solutions to complex transactions. ATMs, smartphones will become more integral part of the overall solution 3
Opportunities and challenges - 0 key points for banks to consider 9. Technology serving multiple masters end-of live issues and years of under-investment are compounded by a multitude of new regulations placing considerable stress on banks data and reporting platforms Instead of incremental fixes, a enterprise-wide approach may be the only viable solution. The upfront investment will be significant, but will be outweighed by improved efficiency and operational effectiveness Technology will emerge as a key enabler and differentiator as it will enable staff to deliver much improved customer service (improved understanding of client behaviour will enable targeted services and solutions) 0. Mobile money finally a tipping point? Mobile banking is most sophisticated in RGMs, where lack of physical branch infrastructure has been the catalyst for innovative mobile solutions As banks commit to significant investment in the area, they will have to encourage behavioural shift away from more expensive traditional channels. 4
In Conclusion For some banks the focus is to be positioned for the next wave of explosive growth, for others it is a case of repositioning for survival. The drivers for change might be different, but the need for a fundamental reshaping of business and operating model is key. 5