British banks shutting down operations in Africa over unstable currencies and challenging business environment
Atlas Mara Ltd (Atma) has announced it is to withdraw from Africa. The UK financial conglomerate, which had acquired banks in seven African countries, termed its African investments “risky” and the sub-Saharan African macroeconomic environment as “challenging.”
This raises questions about the prospects for banking in Africa, as 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,” The Citizen reported.
According to Atma’s annual financial statements for the 14 months to February 28 this year, the equity market decline in Africa last year was 60 per cent worse than in other emerging markets, reflecting a particular “risk-off” view of Africa investment. Like other economies, financial institutions across the African continent have been hurt by the Covid-19 pandemic, with many African central banks struggling to provide liquidity support for local banks impacted by the crisis.
Atlas Mara, which was formed in 2013, had sought to become a leading player in sub-Saharan Africa after acquiring banks in some 15 different countries. Unfortunately, high operating costs and bad economic conditions in certain host countries made it harder for the company to find a way out of its precarious financial situation and restore investor confidence.
“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,” the report stated.
“With already constrained fiscal environments and relatively limited assistance from central banks, African markets have been unable to mount economic 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.
“Despite the challenging macroeconomic environment in Africa. I am also pleased to report resilient operating performance from our underlying banks during the financial year,” Wilkerson added.
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In 2016, Barclays announced its withdrawal from Africa after the company reported a 2% profit drop and a dividend cut of more than 50% per share. The bank, whose operations on the continent span more than 100 years, marked its complete exit from the region by gradually reducing its 62% stake in Barclays Africa Group to a non-controlling stake of 14.9 per cent.
Following the exit of Barclays Plc, Barclays Africa group – since renamed 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.
Similarly, in April this year, Standard Chartered Bank Plc also announced its plans to reduce its global branch network by half to around 400, as the British bank looks to cut long-term expenses by permanently adopting changes to working practices and retail banking that were adopted due to the coronavirus pandemic. According to financial experts, the move shows how StanChart is looking past short-term improvements in its results to tackle longstanding profitability challenges.
Continental problems
The opportunities for more growth in sub-Saharan Africa has simply dwindled as International Monetary Fund recently reported that the region requires external funding needs of $425 billion up to 2025 to help strengthen the Covid-19 pandemic response spending and accelerate income convergence.
In the 2021 Regional Economic Outlook Report, the financial institution noted that Africa would be the world’s slowest-growing region this year despite a more favourable external environment, mainly due to the unprecedented health and economic crisis caused by the pandemic.
The World Bank has also projected growth for Africa in 2022 and 2023 to remain just below four per cent. According to the global lender, the continent’s economic recovery continues to lag compared to advanced economies and emerging markets, reflecting subdued investment in sub-Saharan Africa.
