How we ranked Africa's top 100 banks.
The African markets continue to present both opportunities and challenges for strategic investors and nowhere is this better reflected than in the area of the financial services industry. Economic growth in Africa is projected to exceed 5% this year and next, thus conditions are ripe for well-managed banks to perform strongly. Consolidation (as recently in Nigeria) is needed as a number of markets remain over-banked.
The rationale for mergers and acquisitions is that larger banks can exploit economies of scale, reduce costs and provide their clients, both retail and corporate, with new and more efficient services--including internet banking and electronic payments.
Once again, the 'Big Five' South African giants (Stanbank, ABSA, Nedbank, Investec and FirstRand) dominate the top positions in our annual survey. The remaining places in the top 25 are filled by Moroccan (led by Attijariwafabank), Egyptian (National Bank of Egypt), Nigerian (United Bank for Africa and Intercontinental Bank), Algerian (Banque Exterieur d'Algerie), Tunisian (Societe Tunisienne de Banque) and The Mauritius Commercial Bank--as well as African Bank, South Africa micro-credit lender. Commerical Bank of Ethiopia, the Lome-based Ecobank Transnational, Kenya Commercial Bank, BGFI Bank (Gabon), Banco De Fomento Angola, and Bank Windhoek (Namibia) occupy the top positions in their respective marketplaces.
In 2005, South African banks accounted for three-quarters of sub-Saharan Africa's total core capital and a massive 83% and 72%, respectively, of aggregate financial assets and pre-tax profits. Over the next decade, Nigerian banks should represent a larger share of aggregate Tier 1 capital thanks to vastly increased capitalisation of the 25 mega-banking groups. However, non-performing loans continue to be a problem in Algeria, Egypt, Ethiopia, Kenya, and Nigeria, among others. The Central Bank of Nigeria has formed an asset management company to recover bad debts and minimise budgetary costs.
By and large, Africa's rating is improving in the international financial community. Some 28 African banks were included in the UK's The Banker magazine's 2006 listing of the world's 1,000 strongest banks. Standard Bank led at number 118, followed by Nedbank (165) and Investec (189). Nine Nigerian banks were in the top 1,000 (none in 2003), led by First Bank (784), Union Bank (797) and Zenith International Bank (857). In North Africa, Attijariwafabank (355), National Bank of Egypt (377) and Credit Populaire du Maroc (428) were also ranked among the world's strongest banks.
RELATED ARTICLE: BANKING
The Balance sheet is a financial statement showing a bank's assets, liabilities and equity, as well as yearly income on a given date, approved by an external appointed auditor.
Banking profitability is calculated before corporate taxes and minority interest payments for end-reporting period. The financial health of a single bank is measured by annual Returns on Total Assets deployed and Returns on Equity (ROE)--i.e., shareholders' funds.
Total assets deployed refer to cash and short-term funds, demand balances with other banks, loans/advances (business/personal lending, structured project finance), short-term investments (Treasury bills), investment securities (including stakes in non-banking ventures), debt stock and fixed assets.
Deposits include the customers' deposits and certificates of deposits. There are two types of savings account--non interest-bearing current account and time deposit. The latter is usually referred to as checking or deposit account that pays a fixed-term interest.
Non-performing loans refer to loans that are in default or close to being declared in default--i.e., typically in interest arrears for 90 days or more.
Tier 1 capital comprises (i) common shareholders' equity and retained profits or net earnings; (ii) qualifying non-cumulative preferred stock (up to a maximum of 25% of Tier 1 capital); and (iii) minority interests in equity accounts of consolidated subsidiaries.
Tier 2 capital is defined as (i) reserves for problem assets [bad debts] that may not exceed 100% of Tier 1 capital; (ii) perpetual preferred stock not qualified to include into Tier 1; (iii) hybrid capital instruments and mandatory convertibles; (iv) subordinated debt; and (v) preferred stock with medium-term remaining current maturity. Tier 2 capital is sometimes referred to as "supplementary capital" and Tier 1 as "core capital".
The Basle Capital Convergence Accord as operated by most domestic regulators requires banks to hold total capital equivalent to at least 8% of their combined assets, with half of this cushion in the form of Tier 1 capital.
Assets are weighted according to perceived risks, with a 100% weighting for most private-sector lending; 50% for residential mortgages; and only 20% for short-term inter-bank credits and lending to multilateral development banks.
Loans to banks from non-Organisation for Economic Cooperation and Development countries (exceeding one-year) receive a 100% risk-weighting. However, claims on central banks and governments in local currency have zero-weighting.
Syndicated lending refers to large loans made jointly by a group of banks to one borrower. Usually, one lead bank takes a small percentage of the loan and partitions (syndicates) the rest to other banks.
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|Date:||Nov 1, 2006|
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