Standard Bank. Picture: FINANCIAL MAIL
Standard Bank. Picture: FINANCIAL MAIL

Standard Bank's Zambian business, Stanbic Zambia, has invested 660-million kwacha (about R667m) to digitise its operations with the hope of tapping into the unbanked population.

Analysts say investing in digital platforms could be the key ingredient Standard Bank needs to start increasing contributions from operations elsewhere on the continent.

Increasing contribution from other geographies has become critical for SA’s traditional banks as the local operations are grappling with a sluggish economy and intensifying competition for transactional banking revenues since new entrants such as TymeBank are disrupting the sector with no-fee accounts.

The rest of Africa's contribution to  Standard Bank’s headline earnings has grown from 25% in 2016 to 31% at the end of 2018. In 2008 the rest of Africa contributed just 13% to the group’s R14.1bn headline earnings at the time.

With just over 150,000 customers and a net profit that is roughly 1.4% of the Standard Bank Group’s R27.9bn headline earnings in 2018, this is a huge investment for Stanbic Zambia. It is almost double the bank’s annual net profit which amounted to K359m in 2018.

Wessel Badenhorst, banking analyst at 36ONE Asset Management said investment in digital platforms was essential for Standard Bank to reduce the cost of doing business in African regions, especially those with limited scale like Zambia.

“It remains costly to do business in African markets, as can be seen from the substantially higher cost-to-income ratios in these operations which is close to 80% for Standard Bank compared to below 60% in SA,” said Badenhorst.

Zambia alone would not move the needle for the Standard Bank Group, he said. However, the investment was likely a reflection of what’s to come in the rest of the continent.

International operations of the big banks have been outperforming SA, Badenhorst said. If these can move more customers directly to digital channels, reduced cost of doing business may amplify their performance.

“In countries where the population is geographically dispersed, this can be a more cost-effective way of delivering banking services to the country as a whole,” he said.

Harry Botha, analyst at Avior Capital Markets, said he expected Zambia and the rest of Africa operations to deliver stronger revenue growth for the Standard Bank Group than SA over the next year or two.

“Profitable growth outside SA is an important differentiator for Standard Bank compared to the rest of the major SA banks,” Botha said.

Africa regions grew headline earnings by 19% in 2018 or 22% on a constant currency basis, while Standard Bank’s SA operations had flat revenues and its earnings dipped 1%. Return on equity in the continent is also much higher at 24% in 2018 compared to 16% in SA.