British banks exit Africa as unstable currencies and ‘risks’ raise costs of operations

Britain's top banks are pulling out of Africa and casting doubt on the economic growth prospects of a continent that has been riding on the narrative of ‘‘Africa Rising’’ for more than a decade.

UK’s financial conglomerate Atlas Mara Ltd (Atma), which had acquired banks in seven African countries, is at the tail end of exiting the continent. It has termed its African investments “risky” and the sub-Saharan African macroeconomic environment as “challenging”.

The bank's holding company, which is listed on the London Stock Exchange, says currency volatility and drying up of liquidity in African markets adversely impacted its operations prompting the board to reconsider divestiture and new funding options to shore up the Group’s balance sheet.

Low liquidity support

According to Atma’s annual financial statements for the 14 months to February 28 this year, the difficult operating environment on the continent has been exacerbated by the Covid-19 pandemic with many African central banks struggling to provide liquidity support for local banks impacted by the crisis.

“At the same time political pressures led to the imposition of regulatory restrictions on interest rate increases, imposition of fees and other actions that would ordinarily be available to defend liquidity and capital, if not profitability,” the company says.

According to the report the equity market decline in Africa last year was 60 percent worse than in other emerging markets, reflecting a particular “riskoff” view of Africa investment.

“With already constrained fiscal environments and relatively limited assistance from central banks, African markets have been unable to mount eco - nomic responses as impactful as those in the US or the EU, and local currencies, debt and capital markets remain under considerable pressure,” said Michael Wilkerson, the Group’s chairman.

From September 2020 to date, Atma has completed divestment in Mozambique, Rwanda, Tanzania and Botswana, and discussions are ongoing for the sale of its Zambian subsidiary.

The company, which was formed in 2013, had planned to acquire banks and sustain its operations in 15 African countries.

According to the report, major currency depreciations across the African markets in which the company operates resulted in a more than $145 million reduction in the dollar value of the company's assets, and a decrease in the company's debt capacity.

“Despite the challenging macroeconomic environment in Africa.

"I am also pleased to report resilient operating performance from our underlying banks during the financial year,” said Mr Wilkerson.

Barclays Plc, whose operations on the continent span more than 100 years, marked its complete exit from the region in December 2017 by reducing its shareholding in South Africa’s Barclays Africa Group from 62.3 percent to a non-controlling stake of 14.9 percent.

In 2016, the lender announced its plans to exit the African market by selling off its entire 62.3 percent shareholding in Barclays Africa Group, the holding company of its African subsidiaries, or reducing it to a non-controlling interest over a two-three-year period.

Barclays Plc sold off business units it did not consider core operations and shifted attention to consumer, corporate and investment banking in Europe and the US.

Following the exit of Barclays Plc, Barclays Africa group, which is currently 40 percent majority owned by South African investors, rebranded all African operations to Absa Barclays Africa Group, now Absa Group Ltd, is listed on the Johannesburg stock exchange and owns stakes in 14 countries across the continent including Kenya, Uganda, Tanzania, Mauritius, Namibia, Zambia, Seychelles, Ghana, Nigeria, Mozambique, Botswana and South Africa.

Meanwhile, Standard Chartered Bank Plc said in April this year that it plans to close half its branches and reduce global office space by a third, as it seeks to save costs by permanently adopting changes to working practices and retail banking that were adopted due to the coronavirus pandemic.

According to the UK’s business publication Financial Times, the emerging markets-focused lender would take a provision of $500 million this year to cut its network to 400 from 776 branches after they experienced reduced usage during worldwide lockdowns in 2020.

The lender’s physical footprint has been declining over the past five years.

It operated 1,068 branches across Asia, the Middle East and Africa in 2016, but coronavirus has led to an increase in online and mobile banking.

In 2014, Standard Chartered also hinted at plans to close up to 100 bank branches in Asia, Africa and the Middle East in an attempt to improve its profitability by cutting about eight percent of its global network of the then more than 1,200 branches, to save $400 million a year.

External funding needs

According to the International Monetary Fund, sub-Saharan countries face additional external funding needs of $425 billion up to 2025 to help strengthen the Covid-19 pandemic response spending and accelerate income convergence.

The region’s low-income countries require $245 billion in external funding in the same period.

According to the IMF’ s Regional Eco - nomic Outlook Report (2021), Africa will be the world’s slowest growing region this year despite a more buoyant external environment largely due to the unprecedented health and economic crisis caused by the pandemic The continent’s economic growth contracted by –1.9 percent in 2020.

According to IMF, 17 African countries were either in debt distress or at high risk of distress in 2020, one more than before the Covid-19 crisis Outflows from emerging and frontier markets in sub-Saharan Africa totalled $5 billion between February and June last year.

According to the World Bank, the projected growth for Africa in 2022 and 2023 remains just below four percent, continuing to lag behind the recovery in advanced economies and emerging markets, and reflecting subdued investment in sub-Saharan Africa.

The World Bank says the region faces worsening impact of climate change in addition to mounting fiscal pressures and rising debt levels, as countries implement measures for a sustainable and inclusive economic recovery.​