Africa can expect increased competition in its banking sector as new players are attracted by the continent’s economic potential, Ecobank’s chief executive said, but governments must do their part to lower perceived risk.
Interest has grown in Africa, home to some of the world’s fastest growing economies, as investors seek new frontier market opportunities.
Thierry Tanoh, CEO of the pan-African lender, said he expected banks in South Africa and North Africa tobecome increasingly aggressive in the battle for market share. Meanwhile, large global banking groups will seekto break in.
However, in order to fully harness the new momentum, he said Africa must shake off a bad, and largely undeserved, reputation as a minefield of risk.
“There’s a perception of risk in Africa that is way above the reality,” Tanoh told Reuters in an interview on the sidelines of a stock markets conference in Ivory Coast this week. “Information is key.”
He said underdeveloped regulation of the sector and a shortage of credit bureaux and information sharing in many countries has left banks struggling to separate credit worthy clients from a handful with histories of default.
As a result they have been forced to spread risk broadly, driving up borrowing costs and ultimately hampering economic growth.
“You don’t want a minority penalising the majority. And if you don’t have access to good information, that’s generally what happens,” Tanoh said.
“Governments and regulators have a role to play to ensure that the environment in which we are evolving is conducive to business,” he said, citing Mauritius, Cape Verde and Rwanda as examples of countries on the right track.
Ecobank is headquartered in Togo, listed in Nigeria and Ghana and has operations in 35 African countries.
With more than 1,200 branches and assets that nearly doubled to almost $20 billion between 2010 and the end of 2012, it has been held up as a pan-African success story due to its strong growth and aggressive expansion strategy.
Its nine-month pre-tax profit rose 56 percent year-on-year to $299 million. In March, it announced a record annual profit of $348 million.
Tanoh said that the bank remained open to expansion into Africa‘s Portuguese-speaking countries, but would concentrate on building upon its current platform with capital injections probably required to bolster its position in some markets.
“If you look at the level of capital in East Africa and if we compare to the banks over there, I think at some point we will have to look at providing more resources in this region to better compete. That is an aspect that we are looking into,” he said.
Ecobank’s rapid growth has made it attractive to foreign investors.
South African lender Nedbank said earlier this year that it planned to exercise its option to acquire up to a 20 percent stake in Ecobank under the terms of a $285 million loan which it has the right to convert into equity.
Tanoh said Ecobank was not actively seeking to partner with a larger bank as a potential strategy to finance further expansion.
“Ecobank has always prided itself on being independent and pan-African. I think we should continue this,” he said. “Our focus is Middle Africa. This is a market with a lot of potential. We’re not number one in every country and that’s what we want.”