Home Business French banks’ African retreat could boost local competitors, says Fitch

French banks’ African retreat could boost local competitors, says Fitch

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French banks’ African retreat could boost local competitors, says Fitch

The widespread withdrawal of French banks from the African market could lead to local competitors growing faster, Fitch Ratings has argued.

Several large French banking groups have wound down their operations in Africa in recent months. In April, Société Générale announced that it would be selling its Moroccan company and its subsidiaries to local conglomerate Saham Group.

BNP Paribas, BPCE, and Credit Agricole have also significantly reduced their operations on the continent in recent years. Fitch Ratings says that further divestments in the next couple of years are to be expected.

There are several reasons for this withdrawal. Global banking regulation reforms – known as Basel III – have introduced new capital buffer requirements that oblige banks to maintain higher cash reserves that they can use in times of economic distress. This has reduced the amount of capital available for investment overseas, particularly in higher-risk regions such as Africa.

France’s waning political influence in the Sahel – Paris pulled its military out of Niger amid a fallout with the military government, which has sought to harness anger over the perceived influence that the former colonial power still wields – has also been cited as a factor for French banks winding down their African businesses.

Jamal El Mellali, Fitch Ratings’ director covering African banks, tells African Business that “French banks have been gradually exiting Africa to refocus on areas where they have competitive strengths and in countries where operating conditions are more in line with their risk appetite. African markets are higher risk and the level of returns of their subsidiaries, from the French banks’ perspective, is often not enough to justify their presence there.”

“Other factors explaining the exit from Africa include tighter regulatory capital requirements for European banks justifying assets sales, as well as increasing geopolitical tensions in some parts of Africa,” he adds.

The gap left by French banks could cause some problems for individuals and businesses in affected countries, at least in the short-term. Fitch Ratings has suggested that local banks are unlikely to have the same levels of foreign exchange liquidity that the global French banks would have provided, potentially disrupting cross-border remittances, payments, and trade finance.

However, El Mellali is confident that these obstacles will be overcome and that local banks will ultimately be able to fill the void left by France’s withdrawal.

“We believe the exit of French banks from the continent will provide significant opportunities for local and regional banks in Africa,” he says. “Some banking groups with pan-African ambitions, such as Coris Bank International or Vista Bank, which have been acquiring subsidiaries from French banks, should eventually gain enough scale to compete with the already well-established institutions.”

“These is a significant addressable market that has been untapped by French banks due to stringent lending standards, which will provide a strong growth avenue for African banks.”

A greater role for local banks in the African market could have several positive impacts on the development of Africa’s banking industry, and indeed the wider business environment on the continent. For one, European banks have tended to be reluctant to lend cash in Africa because they viewed such loans as unacceptably risky. This has made it difficult for small businesses to access the capital needed for investment and growth.

“We expect to see higher financial inclusion and better access to financial services across Africa, as African banks will target some of the segments that were not catered for by the French banks’ subsidiaries due to a more stringent risk appetite,” El Mellali says.

“Small and medium sized enterprises, whose access to credit is often limited, will be one of the beneficiaries. We also expect the lower end of the retail segment to experience faster growth.”

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