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Banks are both a symptom of, and a foundation for economic health. Surveying the banking sector can give an idea of overall health, and a hurting banking sector can drag the entire economy down with it, as was the case in the 2008 crisis. Banks are especially important as an economic actor in Africa, because of quick growth requiring a good financial support structure. Strong private banks have benefited from the large number of multinational organizations (CEDEAO, EAC, SADC and others) that facilitate transnational finance in order to grow.

If one needed proof that this structure works, 2015 would be that proof. African banks have had a record year in 2015, with a total income for the entire continent’s banking industry increasing by 25.7% from 2014. South African banks accounted for a large part of that total income, but other large institutions like Nigeria’s Guaranty Trust Bank are growing fast. Even financial institutions from the continent’s numerous oil-dependent economies – Angola, Congo and many others – have hedged successfully and spread their assets to weather changes in oil prices like the plunge currently happening. Most African banks have proved able to pass stress tests in 2015, an improvement from last year when the same tests raised multiple questions and the need to raise more capital. Other banks have taken to growing internationally, especially through M&A’s, outside their traditional region of operation. Kenya’s Equity Trust Bank, for instance, is set to acquire a Congolese bank in 2016.

This growth is supported, like most of the continent’s economy, by the quick expansion of the African middle-class. For the banking sector, this means the demand for banking services is growing rapidly, encompassing “traditional” banking services, beyond those typical ones you’d find in developing economies like mobile money and microfinance. Meeting this rising demand will be the biggest challenge of all industry players in 2016 and beyond.

The other challenge comes from inside the sector itself: Industry standards are rising faster than anyone expected. Banks have embraced reconciliation throughout the continent, and centres of excellence for reconciliation have been set up by most of Africa’s banks. This denotes a new approach to business – reconciliation is a cost-saving initiative at heart, but also a compliance measure – that will give its early adopters a competitive advantage and change the sector’s geography in the short run. At the same time, it will give the winners the tools to be competitive on the world stage, and potentially expand beyond Africa itself.

To survive against competition from within Africa, but also foreign actors investing heavily in the continent, local banks will need to innovate. That may take the form of a new offer of services (specific student loans maybe, or new life insurance policies), or completing the transition to a digital economy. It may involve the use of big data to predict consumer and market trends in the unique economies that make up Africa. It could also take the form of mobile and biometry-based applications. All these trends have been predicted by one or more futurologists, but one thing is for certain, the sector is going to become even more skills-intensive than it is elsewhere. The one strategic advantage now is not going to be capital, or resilience, but creativity.

Vincent Prunac – Senior Consultant – Morgan Philips Middle East & Africa

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