Western banks doing business in Africa are finding it hard to crack the retail banking segment as domestic players and fintech groups have solidified their positions, forcing their retreat from the continent, according to a report by Moody’s.
French and other multinational banks operating in Africa, particularly in retail and corporate and investment banking (CIB), have to contend with established SA, Nigerian and Moroccan pan-African banking groups, with Standard Bank dominating CIB.
The Moody’s report said foreign lenders looking to grow their asset base in Africa have found the going especially tough in retail banking. They have disappointed in the sector as increasing competition from mobile and digital competitors challenges traditional banks’ market share and profitability.
The report said mobile banking has become an easy alternative for money transfers and an important vehicle for increasing banking penetration on the continent, which is home to the world’s youngest population.
“Fintech start-ups and mobile money operators such as Safaricom’s M-Pesa, Orange Money and MTN Mobile Money have also expanded rapidly, offering a wide range of financial services to underserved individuals, and new markets like the microcredit segment,” Moody’s said.
“Competition between traditional banks, fintech start-ups and mobile money operators is intense, and traditional banks are working hard to defend market shares while preserving profitability.”
Banking majors such as Barclays, BNP Paribas, Credit Agricole, Groupe BPCE, HSBC, Societe Generale and Standard Chartered have either exited Africa or are scaling down their exposure to the continent.
Moody’s said that because many African countries still lack standardised national identity systems, it was difficult for foreign lenders to meet stringent “know your customer” requirements. As a result, Western banks tended to limit their financing operations to well-established corporate and affluent urban clients, missing out on broader market potential.
“Local banks are more attuned to domestic realities and better positioned to serve informal businesses, rural populations and young adults. By leveraging mobile technology, agent networks and alternative data sources, they are building resilient customer bases in areas typically overlooked by global operators,” the report read.
“Africa’s rapid demographic growth, the rise of a young and increasingly urbanised middle class, and low banking system penetration also create fertile ground for financial expansion.”
However, Moody’s said the continent remains geographically fragmented with unevenly developed transport infrastructure, particularly the roads, railways and airports needed for economic integration. It singled out Standard Bank as one lender that has positioned itself to finance big infrastructure projects.
“For local banks that are able to scale up, the fragmentation offers an opportunity to finance infrastructure projects essential for unlocking trade, mobility and development across borders,” Moody’s said. “SA’s Standard Bank, for example, has financed major energy and transport projects across Southern Africa like the Ummbila Emoyeni Wind Project and the Ishwati Wind Farm renewable energy project in SA, as well as the Diaz Wind Project in Namibia.”
Besides the departure of Barclays from SA when it sold its stake in Absa, exits from the SA market by foreign lenders have been concentrated in CIB, where domestic players such as Standard Bank, Absa, Nedbank and Investec dominate.
BNP Paribas, the eurozone’s biggest bank, last year wound down its corporate and investment banking services in SA, 12 years after making its local foray. The exit came as the banking giant ramped up its 2025 strategic plan, announced in 2022, that made the most of its noncore Africa operation, with a focus on consolidating its European and Asian business.
British multinational bank HSBC is the latest offshore banking giant to exit SA. HSBC said last year it would transfer its clients and banking assets and liabilities to FirstRand and smaller rival Absa. Its SA branch employees would be transferred to FirstRand.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.