China the new battleground for South Africa’s ‘Big Four’ banks

South Africa’s ‘Big Four’ banks – Absa, Nedbank, FirstRand, and Standard Bank – want to increase their market share in China and capture the value from increasing trade and financial flows between the Asian economy and Africa. 

This week, Nedbank reaffirmed the expansion of its corporate and investment banking partnership with the Bank of China (BOC) to facilitate increased business flows between China and Africa. 

Nedbank first signed a cooperation agreement with the Chinese bank in 2013 and wants to increase its exposure to the world’s second-largest economy.  

The initial agreement in 2013 was designed to enable BoC’s clients by granting them access to an African bank, while Nedbank clients seeking expansion into China and other Asian markets would benefit from the Chinese bank’s expertise. 

This move follows Absa opening a non-banking subsidiary in China earlier this month, enabling it to provide general advisory services to clients. 

The lender will also be able to distribute research about the macroeconomic environment and securities reports to some institutional clients in China.

“Our decision to establish a presence in China was driven by our ambition to better connect trade, investment flows, and clients into Africa,” CEO Arrie Rautenbach said. 

China has historically been the largest investor on the continent, and trade between the two countries has grown significantly over the past two decades. 

Chinese companies have invested significant sums of money in Africa’s vast natural resources and infrastructure projects, creating huge commercial opportunities for both regions.

With its latest move, Absa joins rivals FirstRand and Nedbank in deepening their foray into China. Standard Bank also has a subsidiary in the market.

Similar to Nedbank, Standard Bank has had a long-standing partnership with the world’s biggest bank, the Industrial and Commercial Bank of China (ICBC). 

Standard Advisory (China), the bank’s subsidiary in China, provides general business liaison and marketing support to other entities within the Standard Bank Group. 

Africa’s largest bank by assets has had a presence in major financial hubs for well over a decade, with offices in New York, London, and Sao Paulo. 

This is part of its strategy to be the dominant player in facilitating trade between African states and their global counterparts. 

FirstRand offers services to Chinese companies doing business in Africa through FNB and RMB. It also has a presence in New York and London. 

Standard Bank has the edge – for now 

Standard Bank has a significant competitive advantage in this arena, as it operates in more African markets than its peers and has a dominant position in many of them.

Research analyst Tasneem Samodien at Private Clients by Old Mutual Wealth said the company’s operations outside of South Africa have driven its growth over recent years.  

While African regions constitute 27% of Standard Bank’s net asset value, they contributed 42% to the group’s headline earnings. 

This is significant given that just a decade ago, African regions accounted for just 12% of headline earnings and were considered relatively immaterial within the broader group. 

Standard Bank’s foray into Africa started in 1988 with the acquisition of a 49% interest in Union Bank in Eswatini. 

The group slowly added to its exposure through acquisitions and organic expansion. 

Despite its size, Samodien said that Standard Bank still punches above its weight by ensuring its ventures into Africa have been profitable for shareholders. 

In 2023, its return on equity in Africa surpassed its return on equity deployed in South Africa, offsetting the higher cost of capital outside of its home market. 

One advantage of the group’s dominance in Africa is its Global Markets division, which bridges the gap between African businesses and international markets. 

Through this business unit, the group assists clients in trading foreign currencies, commodities, fixed-income securities and equities, providing a valuable source of income diversification. 

It currently has a presence in 20 sub-Saharan countries and has amassed a significant share of the banking market across the region, as shown in the graph below.