Standard Bank’s African adventure

Standard Bank has been one of the few examples of a South African company expanding deep into Africa and ensuring it was a profitable venture for shareholders. 

In the bank’s latest interim results, its African operations contributed 41% towards its headline earnings and had a higher return on equity than its South African business. 

This is significant as only a decade ago, African regions accounted for just 12% of headline earnings, with some even considering them immaterial to the group’s performance. 

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. 

It currently has a presence in 20 sub-Saharan countries and has amassed a significant share of the regional banking market. 

In an interview with Daily Investor, Standard Bank CEO Sim Tshabalala explained how the bank was able to expand into Africa so profitably. 

In the 1980s, Dr Conrad Strauss and Eddie Theron, alongside other executives, decided to grow Standard Bank into Africa following the sale of Standard Chartered’s stake in the bank. 

“That was to say, they had knowledge, experience and capacity to serve clients outside South Africa, and Africa was a natural place for them to do so,” Tshabalala said. 

The bank steadily grew through acquisitions and partnerships in key African markets, typically geographically close to South Africa. 

“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 backers on the ground that is standard practice, and have got blood that is as blue as yours.”

“The most important ingredient for the expansion has to take a long-term view rather than a short-term view. Standard Bank does not go in and out of countries. We think very carefully about closing and opening businesses.” 

Standard Bank now has a leading position in many markets across Africa, which is shown in the graph below from Old Mutual Wealth Private Clients. 

Changing gears

As part of its deeper expansion into Africa, Standard Bank reacquired outright control of Liberty in 2022. 

This is part of the bank’s plans to grow its insurance and asset management business in South Africa and abroad to reduce its reliance on purely banking activities. 

In particular, asset management is a highly cash-efficient business and offers a way to cross-sell investment products to Standard Bank’s broad banking client base. 

Tshabalala explained that forming a full-service financial institution is the future of Standard Bank and banking overall. 

“It’s always been a proposition to say that when we service our clients, we will service them with all their financing needs, whether it be to pay to save, to invest, to borrow, to create wealth, or to pass it on to future generations,” he said. 

“To do that, we have always thought it was necessary to have insurers and asset managers in our group. And we have been proven correct.” 

Liberty and Stanlib now belong to the broader Standard Bank group, which opens up opportunities for the bank to cross-sell insurance and asset management products to its banking clients.

The bank aims to do this in South Africa and expand the model to its other African markets, with a particular focus on Kenya and Nigeria. 

“The proposition when we take this long view is that there will be greater banking penetration and insurance and asset management penetration as people become more sophisticated and as the capital and money markets become more sophisticated.”

“And therefore, we want to be part of that financial and enjoy the benefits that arise from the pension fund reforms, you know, the restructurings that happen and the forced savings that are happening in these countries.” 

Head of investment solutions at Standard Bank South Africa, Duncan Wattam, recently outlined the bank’s plans to dominate asset management in the country. 

Currently, Standard Bank, as a group, is the second-largest private asset manager in South Africa behind Ninety One. 

The bank has R1.4 trillion in assets under management (AUM) through its various businesses, including Stanlib, Melville Douglas, and Standard Bank Asset Management. 

Of the R1.4 trillion, Stanlib holds over R650 billion in AUM and is South Africa’s largest fixed-income and property investor. 

Wattam said the bank’s strong competitive advantages allow it to grow at a higher rate than the rest of the market and leapfrog competitors. 

Standard Bank has four factors working in its favour to help the bank take the asset management industry by storm.

The first factor is the bank’s more than 18 million-strong client base, enabling it to cross-sell these investment products throughout Africa. 

This will enable the bank to fully service its clients on both sides of their balance sheet – from traditional loans to retirement products. 

Secondly, Standard Bank has a global footprint, with offices in Jersey that manage its offshore banking services. 

This means the bank can help clients bank offshore and manage their offshore investments in hard currency, diversifying its earnings into more stable currencies from developed markets. 

Through this, Standard Bank aims to capture value from clients taking money into and out of South Africa – something it has done predominantly for businesses in the past. 

The third factor is the bank’s ability to penetrate Africa’s untapped insurance and asset management market. 

African financial systems remain relatively unsophisticated, with many citizens being unbanked and lacking access to financial products. 

While Standard Bank has made strong progress in growing its banking services across Africa, insurance and asset management has lagged behind. 

Fourthly, the bank will have complete control of the entire value chain, enhancing its capital efficiency and profitability. 

Wattam said this will ultimately enable Standard Bank to offer more competitive pricing for its products and offer more value-added services through existing distribution channels.