African retail banking still has huge growth potential – Guaranty CEO

140 million mobile phones but just 23 million bank accounts means Africa's retail banks have their work cut out, says Segun Agbaje

March 29, 2016

Countries across sub-Saharan Africa are grappling with the challenges of sustaining high levels of economic growth, amid a backdrop of plunging commodity prices. Segun Agbaje, Managing Director and CEO of Guaranty Trust Bank, discusses Africa’s major economies, the sectors showing most growth, and how banks are turning away from corporates and towards SMEs.

World Finance: Countries across sub-Saharan Africa are grappling with the challenges of sustaining high levels of economic growth, amid a backdrop of plunging commodity prices. Here to discuss is Segun Agbaje, Managing Director and CEO of Guaranty Trust Bank.

Well Segun, first-off: can you talk me through the major economies in Africa – of course Nigeria is leading the way.

Segun Agbaje: Well yes, there is Nigeria. I mean, I try to think of north Africa away from Nigeria. So there’s Nigeria. There’s east Africa – I look at east Africa basically like one zone, it’s becoming an economic zone. In there you’ve got Kenya, Uganda, Rwanda, Tanzania. There is Ghana, which is smaller. Then of course there is South Africa. And then there is Egypt. I think today those are probably the biggest economies I see in Africa.

Then you have Angola, which is obviously oil driven, and Mozambique, which is a gas play, really.

World Finance: And where would you say are the major growth markets, and how are you approaching them?

Segun Agbaje: First in Africa there’s a lot of people who are financially excluded. So retail: banking individuals is a huge growth segment. And the telecoms companies have taught us that. You have countries where you have 140 million mobile lines, and you have 23 million bank accounts. So there’s still so much to do.

And then you have the small and medium-scale SMEs. There’s plenty to do there. There’s food: food is a big thing. There’s the garment industry. Those are the things I see as high growth. I mean, I’ve started moving away from the corporate-type businesses: manufacturing and oil and gas; and coming down to the SMEs and retail-type businesses.

World Finance: Well oil prices have really hit Nigeria – and indeed Africa – how are they impacting the banking industry?

Segun Agbaje: Oil prices is like seven years of plenty and seven years of deprivation: that’s where we are today.

In the banking industry the way you deal with it – at least, the way we are dealing with it – is you make sure that your loan book doesn’t go belly-up as a result of it. You look at the upstream sector, you look at the downstream sector, you try to safeguard your loans.

Also what it does is, you start to look for other parts of the economies that are doing well. And that’s why I just spoke to you about SMEs, retail, food, garment. So we’ve become a little more cautious with loans in the upstream, in the corporate sector. But we’ve become a lot more bullish about our retail and SME business.

World Finance: Well as you mentioned, SMEs are really driving economies in Africa. Do you think the banking sector’s doing enough to support them?

Segun Agbaje: Well, we didn’t start out by doing that. I think most of us functioned as high-end wholesale banks; we liked all the corporates. Then we started to do retail. And now we’ve seen that you need to do SMEs.

The truth about Africa is that probably one-in-three or one-in-two people is an SME. It’s a huge growth segment.

It has a lot of risk – so traditionally banks have run away from it – but we’re beginning to dimension the risk. We’re attacking it very differently; we’re doing things like market hubs for them, we’re doing payment engines for them, we’re giving them capacity in terms of accounting and understanding finance. I think in the next three to four years, that’s again one of the big growth sectors you’ll see in Africa.

World Finance: Now, mobile banking is becoming the norm in many parts of the world. How is the African banking sector responding?

Segun Agbaje: You know, I actually think the African banking sector’s ahead in terms of mobile banking. The test case everybody refers to is M-Pesa in Kenya, which is one of the most successful mobile engines. In Nigeria as well, mobile’s a really, really big thing. When I look at our mobile technology compared to a lot of developed economies, I think we’re a lot further ahead.

And there is a difference. A lot of it is localised. Because when you go to developed economies, you’re doing a lot of internet-type banking on smartphones. But in Africa there is still a lot of poverty, and most people don’t have smartphones. So we’re using what is called USSD technology, and we’re really doing big things in that mobile space for financial inclusion, and not just building a bricks-and-mortar branch network. I think it’s critical, and I think Africa will remain at the forefront of mobile banking technology.

World Finance: Well finally, what trends do you foresee impacting the sector in the coming 12 months?

Segun Agbaje: I think mobile is going to be very, very big. I think you’re going to see people doing a lot in terms of SME-type business. I think payment hubs, and I think payments is going to be a very, very big thing, all revolving around mobile technology.

And I think African banks are probably embracing disruptive technologies a lot quicker, because we don’t have as many legacies.