Oil's well that ends well?
Concerns about Ebola and disease vectors in West Africa notwithstanding, perhaps the most significant development for African economies in 2014 was the precipitate slide in the price of oil in the second half of the year. The slump, which has taken Brent crude down by almost half since last year's peak [as I write this to below $56/bbl] is both good and bad news. It is bad news for the oil exporting nations and, of course, good news for the oil importers. In overall terms it should provide a stimulus for the continent in reducing the energy costs of infrastructure investment and in boosting domestic consumer confidence.
For the record, Brent Crude still averaged $99.29/bbl in 2014 but the lower price will really begin to have an impact in 2015. I leave for now the question of whether this is a secular change in the oil market or whether it will be a short-lived phenomenon for the coming year. Either way, the continent's banks will still face a challenging 12 months with business growth subdued. Oil is not the only commodity where the price has been under pressure and demand for others, for example copper, has also softened significantly with the global economy likely to see less robust growth than previously thought with Japanese, Chinese and European Union economies all sputtering.
In some African countries, high interest margins and fees on basic services flatter the banking sector's performance vis-a-vis the broader economy. What is clear is that competition is growing with domestic banks likely to face aggressive entrants in both corporate banking and wealth management from regional and global players.
According to EY the battle for customers will extend in to four key areas in 2015: payments, current accounts, peer-to-peer lending and mobile money. Regulation is already driving change in payments, as banks face restrictions on card transaction fees. On current accounts we can expect to see start-ups use new platforms and outsourcing arrangements to offer a fresh take on current/checking accounts while in peer-to-peer lending, trends already seen in the MENA region could extend to Sub Saharan Africa as more asset managers establish loan funds - they may use P2P lenders as intermediaries to source borrowers instead of using banks.
Mobile money has been the subject of extensive coverage already in Banker Africa. That is a trend that is unlikely to change! Competition here will be intense - witness last year's battle over SIM cards in Kenya. Loss of fees is the concern here (whether as a bank or as a telco - it depends which side of that argument you are on).
However, there is also a larger issue which faces the banking industry worldwide, disintermediation: the potential weakening of established relationships with retail customers and merchants. Commitment to customers will be required in order to defend the commitment to bottom line. Too much short-term focus on the latter is likely to mean loss of customers in the medium-term future. Banks in Africa in common with those elsewhere need to get that balancing act right.
Managing Editor - CPI Financial
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