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REGIONAL African banks have a “moral obligation” to step in and fill the gap created by the perceived risk factor on the continent to facilitate speedy economic growth, Standard Bank, Africa’s largest lender by assets, has said. It is the bank’s belief that while growth and trade for Africa have slowed, future projections remain strong despite the challenges.
Head of transactional products and services at Standard Bank Group South Africa, Vinod Madhavan, has urged regional banks to play their part by working closely with governments to bring the desired economic transformation.
“There’s certainly an opportunity for regional and local banks, but apart from local banks who know the markets best, there’s also a role for governments in the various markets to encourage change by ensuring policies support the growth of local markets and financing and whereby more public private partnerships are encouraged,” says Madhavan.
To him the corporate world will continue to seek for transactional and trade finance solutions despite the weaker commodity prices prevailing in Sub-Saharan Africa.
Standard Bank, which is Stanbic Bank Zimbabwe’s parent company, insists that while trade flows are facing headwinds on the back of weaker commodity prices, demand from corporates for transactional and trade financing solutions is actually on the rise owing to varying market performance across Sub-Saharan Africa.
“Although there are some testing times ahead, there are still a number of unique opportunities across the continent,” says Madhavan.
“Our growth rate for sub-Saharan Africa is still one of the fastest in the world.”
The International Monetary Fund (IMF) cut Sub-Saharan Africa’s growth forecasts to four percent for this year and 4.7 percent for next year in their report in January, off prior expectations of 4.3 percent and 4.9 percent respectively.
What’s becoming ever more important is the ability to understand the regions and countries in which trade is being done more closely so corporates and financial institutions can navigate the risks and seize the opportunities when they arise.
He says globally, risk has two aspects — real risk underpinned by fundamentals and “perceived” risk.
“When looking at data points about Africa from the outside, the level of perceived risk will certainly be higher than those levels of risk as perceived by someone who is on the ground and understands the local nuances and fundamentals,” says Madhavan.
However, due to the high perceived risks and also the real risks caused by the fall in commodity prices, he said Africa faces the challenge of foreign institutions and investors de-risking their African exposures.
“Falling commodity prices are real and there’s a belief commodity prices will continue to remain at subdued levels, which does create fiscal stress for our countries. But any de-risking that takes place in these conditions doesn’t mean the financial system will halt, rather it creates opportunities for others,” says Madhavan.
He said in current conditions, risk mitigation and meeting compliance standards will be even more crucial than before. This is why Standard Bank is seeing growing demand for tailored and bespoke transactional and trade finance solutions, he added.
“You can only truly pick up risk if you’re on (or) close to the ground in Africa with local understanding. Closer ties and trust helps a bank like Standard Bank, with its large footprint across 20 countries, take a more informed view on risk and thereby support our clients to get through the storm and achieve their growth objectives,” says Madhavan.
“A strong footprint and sector expertise in each of the different countries is at the heart of the solutions most needed in Africa, right now. This is the key to supporting businesses on their long-term growth journeys in Africa.”
Standard Bank Group is Africa’s largest bank by assets and has reported total assets of R1,98 trillion (about USD128 billion) at December 31, 2015, while its market capitalisation was R184 billion (about USD11,8 billion).
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