Painting Africa Standard Bank blue

Standard Bank is one of the very few examples of a South African company successfully expanding deeply into the continent, with the Big Blue not staging a retreat as many others do. 

CEO Sim Tshabalala told Daily Investor that the ability to think long term and not have to retreat from key markets during downturns or uncertainty is key to the bank’s success on the continent. 

Tshabalala proudly told shareholders and the media that Egypt is the latest country to be painted Standard Bank blue in Africa, with the financial institution now operating across 21 countries on the continent. 

This news came a week after Nedbank announced its intention to retreat from Africa to reset its strategy on the continent by selling its stake in Ecobank, which has now been concluded. 

Nedbank’s retreat followed that of Africa’s largest retailer, Shoprite, which revealed its intention to pull out of Malawi and Ghana this year after attempting an ambitious expansion plan on the continent. 

South Africa’s largest food producer, Tiger Brands, also burnt its fingers when investing in operations across Africa. It famously sold its stake in Dangote Flour, bought for R1.6 billion, for a symbolic $1. 

MTN and MultiChoice have both been hit by regulatory uncertainty, currency depreciation, and difficult operating environments in African markets. 

Many others have staged strategic retreats on the continent, returning home to focus on the South African market or preferring to look for expansion in developed markets, such as the United Kingdom and Australia. 

Simultaneously, Standard Bank has gradually expanded its presence across Africa, operating its four business units across 21 African countries. 

Its earnings from the continent have also grown immensely over the past thirty years, with South Africa only making up 49% of the bank’s headline earnings contributions. 

The Africa Regions business makes up 41% and is growing faster than Standard Bank’s historical home of South Africa, whose economy has stagnated over the past decade. 

Crucially, this growth comes at an attractive return on equity (ROE), with the bank generating R3.5 billion in headline earnings from West Africa at an ROE of 39%. East Africa contributed R2.7 billion at an ROE of 22%. 

In contrast, the South African business grew headline earnings by 2% to R9.6 billion at an ROE of only 15.6%. 

Tshabalala explained that this is partly due to the additional costs borne by the South African business, which is home to its head office and core operations. 

“South Africa is the home base, and that is the launch pad that we use for growth elsewhere. But for South Africa, our African operations would not exist,” he said.

The graphic below shows Standard Bank’s presence across Africa and the scale of its operations on the continent. 

Standard Bank’s secret sauce

Tshabalala explained how Standard Bank has been able to expand across Africa so successfully, with the business being built from scratch over the past three decades. 

Instrumental in the last two of those decades, Tshabalala has been at the coalface of the bank’s expansion and operations on the continent even before he became CEO. 

In five of his first six years at the bank, Tshabalala was managing director of Stanbic Africa, effectively overseeing the bank’s African operations before being appointed to lead the Personal and Business Banking division. 

However, when asked about the bank’s success in Africa, Tshabalala gives little credit to himself and instead praises historical leadership at the bank and the more recent managers of its African business. 

“I think stories are a great way to describe strategy and how it evolves over time. The story of Standard Bank in Africa is more than three decades in the making,” Tshbalala said. 

“And so, you naturally have to take a long-term view and understand that Standard Bank has a long history of operating on the continent.” 

“We have seen cycles in East and West Africa over many, many years, and we have been able to see the volatility and see through it.” 

This, Tshabalala said, speaks to the DNA of Standard Bank as an institution that has operated in Africa for 150 years. 

The expansion into Africa was so nice that Standard Bank had to do it twice, first with Standard Chartered and the second time around all by itself. 

Tshabalala explained that the bank had a substantial presence in Africa when it was owned by British banking giant Standard Chartered.  

The sale of Standard Chartered’s 39% stake in Standard Bank in 1987 left the South African bank with a relatively small African business. 

Part of the legacy of this deal can still be seen today, with some of Standard Bank’s operations in various African markets being under the Stanbic brand so as not to clash with Standard Chartered after the sale and seperation of the businesses. 

Tshabalala said this gave the bank’s leadership at the time a strategic headache of whether to invest heavily in expanding its own presence in Africa or to focus intensely on its home market of South Africa. 

Painting Africa blue

“When we parted from Standard Chartered, the leadership at the time of Andre de Villiers, Dr Strauss, Eddie Theron, and others decided on an African expansion,” Tshabalala recalled. 

“The decision from the top was to go back into Africa on the basis of its expected economic growth, despite the potential headwinds and volatility.” 

Tshabalala waxed lyrical about Standard Bank’s expansion into the continent, recalling historical facts and strategic decisions as though he were recounting a Napoleonic battle as a historian. 

“Eddie Theron went off to London, as part of the expansion, and began building what today is ICBC Standard Bank in England and our international operations.” 

A key part of Standard Bank’s African expansion that is overlooked is the bank’s presence in key global financial hubs, such as London, New York, Dubai, and Beijing. 

The bank identified that to make its African business work, it would have to facilitate the flow of capital into and out of the continent for clients and global investors. 

This was entrusted to Theron in the early days and has become a fully-fledged business in and of itself, contributing around 10% of headline earnings for the bank. 

The other key part of the expansion is Standard Bank’s willingness and focus on following its clients and the flow of capital, rather than trying to create markets from scratch. 

This can be seen recently in its expansion into Egypt, with the bank servicing many clients, including the nation’s central bank, in the country before it formally opened an office in the North African state. 

A key factor identified by Tshabalala in the bank’s successful expansion into Africa has been the appointment of the right people to lead various businesses. 

“There’s been a combination of acquisitions, organic growth, partnerships and making sure that you’ve got well-organised, highly qualified, well-respected and knowledgeable bankers on the ground, and have got blood that is as blue as yours.”

Despite all these elements combining to make Standard Bank’s Africa Regions business work, Tshabalala kept coming back to the bank’s ability to take a long-term view, which he says is in its DNA. 

“The most important ingredient for the expansion is to take a long-term view rather than a short-term view. Standard Bank does not go in and out of countries,” he said.

“To summarise it all, you have to look through the volatility, take a long-term view, and ensure you are disciplined in your capital management.”

Tshabalala and Standard Bank are firm believers in Africa’s economic growth in the coming decades, with the bank still hungry for expansion on the continent, particularly in East Africa.