Intra-regional bank acquisition gaining momentum in Africa

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Nigeria’s Guaranty Trust (GT) Bank’s recent acquisition of Kenya’s Fina Bank to extend profits into the East African region has added a new dimension to the integration of African banks and intra-regional expansion.

“We’ve seen East African banks going into South Sudan, which was virgin territory at that stage, and I think they’ve done a great job of embedding themselves as a franchise. GT Bank acquiring a 70 per cent stake in Fina Bank will allow them a footprint into at least three countries, as opposed to starting up green field operations in those particular countries,” Rand Merchant Bank sector director of banks and DFIs Suresh Chaytoo told CNBC Africa on Thursday.

“What’s very important is to link up intra-regional flows, with the way banks have been expanding in sub-Saharan Africa. Intra-regional flows as Africa as a block is one of the lowest in the world, only 12 per cent of what Africa produces is actually traded intra-regionally, which is very low compared to the European Union, the United States and Asia, at closer to 50 or 60 per cent.”

A number of African banks are also gearing up to expand their continental footprints by opening up other intra-regional flows. Kenya Commercial Bank, for example, is the largest franchise in South Sudan at the moment due to a successful green filed operation strategy. Green field operations are however easier for larger banks than they are for smaller banks because of a larger cash base.

Other banks are nevertheless starting to prefer acquisitions and creating intra-regional flows as a means of quicker and larger expansion rather than organic growth within their own countries.

Notable intra-regional acquisitions include South Africa’s Standard Bank acquisition of Uganda Commercial Bank at a 90 per cent stake, and Nigeria-headquartered United Bank of Africa’s (UBA) acquisition of the Continental Bank of Benin at a 56.4 per cent stake.

“Starting green field operations is very expensive and it takes a long time. The recent GT acquisition of Fina Bank provides them with a footprint in three key African countries and a branch network immediately to take advantage of the retail bank network,” Chaytoo explained.