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While China’s policy banks are lending to governments, India’s commercial banks are on the ground working with businesses and consumers
Chinese state-run policy banks may be leading the way in providing state-to-state finance, but commercial banks from India are capitalising on their historical ties with East Africa to grab a spot in the African banking market. The Chinese banking sector remains heavily regulated and Chinese commercial banks, other than the Industrial and Commercial Bank of China, have set up only small representative offices in Africa. Banks in both Asia and Africa have been quick to sign cooperation agreements, but most provide few details about the impact these partnerships make on profits. While trade levels between Africa and Asia continue to rise, the financial ties between the regions are set to grow with them.
Of all the Asian banks, India’s state-owned Bank of Baroda has the widest network of Africa-based banks. Its newest branch at the Kariakoo Market in Dar es Salaam, Tanzania, opened in June. Baroda also plans to open branches in Arusha, Mbeya, Mtwara and Mwanza. By late 2012, the bank’s management had set up 35 branches in Africa with another 16 in the offing. Baroda is one of India’s most international banks and makes about 23% of its profits from overseas operations.
With assets worth more than US$1.2 billion, the State Bank of India Mauritius is the largest Asian bank in Africa. Two other state-owned banks – State Bank of India (SBI) and Bank of India (BoI) – are close behind. In August, banking-sector regulators in Botswana awarded SBI and BoI new operating licences.
The banks are arriving in Botswana in the wake of India’s diamond traders. President Ian Khama’s government is encouraging polishing and sorting companies to set up operations locally. Long before that, Bank of Baroda and BoI were amongst the first Asian banks to begin doing business in East Africa after following Gujarati and other entrepreneurs to the region in the 1950s (see Map, Asian banks spread across the continent).
Chinese investment in Africa’s banking sector burst onto the scene in October 2007, with an announcement by the Industrial and Commercial Bank of China that it was purchasing a 20% stake in Standard Bank, one of South Africa’s banking giants, for $5.6 bn. ICBC is the largest bank in China, and in the world, in terms of market capitalisation.
ICBC’s strategy was to follow and further facilitate the growing activities in Africa of its Chinese corporate clients through Standard Bank’s network of 18 African country offices. In return, Standard Bank would gain the support of an influential partner in navigating the domestic Chinese market while channelling Chinese capital to Africa. The deal was brokered by Goldman Sachs (which in April 2006 had taken a 4.9% stake in ICBC for $2.6 bn.) in the days following the November 2006 Forum on China-Africa Cooperation in Beijing and the African Development Bank Summit held in Shanghai in June 2007.
COMPETING WITH THE POLICY BANKS
The ICBC-Standard Bank partnership may not perhaps have lived up to the fanfare and fireworks with which it was greeted. Nonetheless, it can boast a number of achievements and it has also paved the way for a growing China-Africa cooperation on the banking front, which has quietly gained momentum. The partnership has, though, failed to deliver the expected string of infrastructure and project-finance deals. Its only concrete result was the financing of Botswana’s Morupule B Power Station.
Indeed, it appears that, even with a Chinese partner, policy banks like China Export-Import Bank and China Development Bank (AAC Vol 1 No 9, Developing and insuring prosperity, China's battling banks & Competing to finance Africa) make formidable competitors on the infrastructure front.
In a rare progress report, China Development Bank President Zheng Zhijie revealed this August that China’s largest policy bank had invested at least $2.4 bn. in infrastructure and commercial projects across the continent over the last decade, while extending loans worth $18.9 bn. China Exim Bank has so far provided African countries with more than $25 bn. in loans.
While lacklustre in comparison, the ICBC-Standard Bank partnership has not been idle (see Chart). ICBC has leveraged its relationship with Standard Bank, completing the purchase of 55% of the South African institution’s Argentinian operations in 2012. ICBC is currently also in negotiations to buy Standard Bank’s London commodities trading platform.
Standard Bank’s strategy is to dispose of assets outside of African jurisdictions in order to focus on markets closer to home. For ICBC, these acquisitions consolidate its global footprint. The first Chinese bank to become a member of the London Bullion Market Association, it is clearly moving to increase its impact in global commodities trading, using Standard Bank’s positioning in London – just as the Shanghai Metals Market comes into its own as the world’s third largest non-ferrous exchange.
In the meantime, all of South Africa’s banking ‘big four’ have found Chinese partners. In 2006, South Africa’s Absa and its British parent Barclays announced plans to provide advisory services for China Exim Bank. South Africa’s FirstRand Group also signed a cooperation agreement with China Construction Bank in July 2009.
All the parties have kept quiet about the results of these alliances, much like China Development Bank’s memorandum of understanding (MoU) with mining giant Anglo American in 2008. In many instances, it seems to be a case of formulating a ‘China-Africa strategy’ without being able to follow through on its execution. Lastly, Nedbank, the smallest of South Africa’s major banking houses, signed an MOU with Bank of China (BoC) in August 2013. Both parties have alliances with Togo-based Ecobank, which has representative offices in 34 African countries and China desks in Accra, Ghana, and Dar es Salaam, thus boasting the widest pan-African coverage.
BANK OF CHINA PLAYS CATCH-UP
BoC has played an aggressive catch-up game in Africa vis-à-vis ICBC, using the internationalisation of the renminbi as a platform to globalise the bank. For decades, it was the only Chinese bank to deal with foreign exchange until China consolidated its policy banks in the 1990s, and currency settlement is its strong suit. However, although BoC has had a Johannesburg office since 2000, until recently the bank had been coy about its African operations.
China’s policy of making the ‘redback’ a global currency has spurred BoC into action. Renminbi settlement almost trebled globally between January 2012 and January 2013. BoC, which holds more than 1,000 renminbi clearing accounts with banks across the globe, is styling itself as the leader in renminbi cross-border settlements. BoC has cleared around 6 trillion renminbi ($981 million) since 2009 and maintains a 30% share in China’s renminbi-clearing market. With expectations that by 2015, 15% of China- Africa trade will be settled in renminbi, BoC is keen to maximise its position.
South Africa alone handled 18% of all renminbi settlement business in Africa in 2011 and this is set to increase. After signing an agency agreement with the People’s Bank of China in April, the South African Reserve Bank has gained access to China’s interbank bond market and is tipped to invest more than $1.5 bn. through the PBOC.
Banks further north have also been quick to seize the opportunities presented by integration with Chinese partners. Tanzania’s National Bank of Commerce launched a Chinese currency offering in August. This allows Tanzanian clients to pay directly for goods and services from Chinese companies in renminbi, partly eliminating the exchange rate risk. The National Bank of Commerce is the second Tanzanian bank to provide such a currency service; the first was Ecobank Tanzania.
Also in August, Tanzania’s CRDB Bank said that it is now accepting China UnionPay cards. The bank joins a number of other African banks, such as Kenya’s Equity Bank, Nigeria’s United Bank for Africa along with Standard Bank and First National Bank in South Africa.
CREDIT CARD COMPETITION
UnionPay, essentially Beijing’s answer to Visa and MasterCard, is now accepted in automated teller machines in a range of African countries. Forty African countries either recognise UnionPay cards or are in negotiations to do so. This demonstrates the scale of planned integration of transactional banking between China and Africa. The implications are considerable, not only for business facilitation but also for tourism, which is a large foreign-currency earner for many African countries.
Japan’s banks lag behind their Asian counterparts. However, this year’s Tokyo International Conference on African Development in June brought promises to increase investment in Africa from Japan’s private sector. Both the central bank, the Bank of Japan, and Mizuho Financial Group are to open offices in South Africa, often the first stop for Asian financiers.
As trade ties strengthen, the banks of smaller Asian countries will have even more reason to be active in Africa. The Bank of Taiwan is the only Taiwanese bank with operations in Africa through its office in South Africa. Nevertheless, it has sourced finance and organised a $268 mn. syndicated loan for South Africa’s Standard Bank in November 2010.
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