Picture: 123RF/FUZZBONES
Picture: 123RF/FUZZBONES

As Africa’s banks react to the impact of the Covid-19 pandemic, they are forced to reassess their operating models and priorities to position themselves to not just manage the outcomes of the crisis, but also the fundamental structural changes emanating from it. Lengthy lockdowns introduced to stop the spread of the coronavirus have brought economic hardship to countries around the world.

Africa is no exception. Economies across the continent face record contractions as governments battle falling revenues, rising expenditure and debt distress. The International Monetary Fund (IMF) predicts Sub-Saharan Africa growth of -1.6% for 2020 — Africa’s worst performance on record and a 5.2% drop from the pre-coronavirus growth prediction for the region.

Business has been at the frontline of efforts to address the fallout from the pandemic. Companies are not only facing change in their own ranks, they also had to manage hardships experienced by their customers, clients, suppliers and communities. In planning for the future, Africa’s banks need to take bold steps. It is not enough to incrementally tweak business models; a strategic evolution is necessary to respond proactively to a new normal characterised by changes in customer behaviour, needs and expectations.

The sudden and severe economic contraction precipitated by the pandemic has put pressure on banking customers across all segments — retail, commercial and corporate. An increased reliance on digital channels has required organisations to quickly ramp up technology infrastructure and resources. Banks are facing increased risks of credit defaults and lower recoveries. All these factors, and more, have had a significant impact on the way banks do business. This has forced them to consider more far-reaching operational and strategic changes as they chart the way forward.

Many analysts believe the sector in Africa was better prepared for this calamity than the global financial crisis of a decade or so ago. Many banks in the region were well capitalised at the start of this crisis and, for the most part, have been able to take fairly sizeable provisions on the balance sheet. Financial services providers have also shown great agility in dealing with the situation, responding quickly not just to manage the economic fallout of the pandemic, but also to protect the lives and livelihoods of their staff and customers.

The biggest threat to traditional banks in the future is that their commitment to a new path fades as the pandemic abates

Many commercial banks in the region supported key customers throughout the process, rolling out forbearance programmes and offering billions in relief to retail and business customers. They also went beyond their core business activities to contribute to the communities in which they operate. The response to managing the pandemic has, indeed, been a collaborative effort. The private sector, governments, development finance institutions, NGOs and others came together to see how to solve challenges faced by countries across the continent.

Central banks played a leading role, with policy measures introduced to assist banks and ensure liquidity in the system. The IMF, Afreximbank and the African Development Bank have also stepped in with significant financial support. While banks must remain mindful that many challenges await them further downstream as the pandemic lingers, it is also time to turn to growth strategies for a post-pandemic future.

African financial institutions need to think about how they can evolve in a way that enables them to better serve the interests of their customers and the continent as a whole.

The pandemic has provided an opportunity for banks to review operating models to ensure they remain agile and able to respond to crises. Even as companies have had to react to changes in a rapidly evolving environment, so have consumers. Their banking journey can no longer be seen as a linear one. Their own unpredictable journey has created a new set of needs and expectations.

This will require banks to become more customer-centric as they find new ways to service customers and clients, playing across different ecosystems, and using digital assets to address gaps in current offerings. Deepening the digitalisation of offerings means that banks must step up their cyber-risk and fraud mitigation strategies and tools, to deal with new and emerging threats.

Addressing a changing environment will require a change in risk management practices, which may include the need to adapt credit-rating and risk methodologies to cater more for the real economy. The continent’s banks need to find more effective ways of serving the small and medium market, recognising it as the backbone of African economies, even though the cost of serving that segment can be quite high.

The pandemic has highlighted the need for greater local production, shorter supply chains and increased industrialisation to make the continent more self-sufficient and increase its ability to react to crisis. The African Continental Free Trade Area Agreement (AfCFTA) therefore provides an ideal opportunity for future growth and development, as countries, companies and continental bureaucrats put their collective shoulder to the wheel to boost the low levels of intra-African trade. The banking sector will be a pivotal player in getting this initiative off the ground.

Development finance institutions and governments can work together with financial institutions to ensure that policies are aligned to the potential in this sector, that the finance needed to catalyse growth is in place, and that it can be accessed in a way that makes sense for customers. This is an opportunity to work with both large and small companies across banking networks to ensure their needs are aligned with the opportunity and that financial service providers can help them in that space.

African banks need to grow their capital base to make available the significant capital that needs to support not just trade, but the economic rebuilding necessary in the wake of the economic disruption and hardship across the continent during 2020. A trend towards banking consolidation may reflect the greater need for capital into the future.

Correspondent banking relationships between African and international banks are moving into an exciting phase as they explore opportunities to work together in support of cross-border trade. The pandemic forced players in the sector to pivot fast, both in terms of execution, in the way they serviced customers and the way they embraced technology. The biggest threat to traditional banks in the future is that their commitment to a new path fades as the pandemic abates.

To ensure survival in an increasingly disintermediated and dynamic world, banks need to embed these learnings and make sure they do not hold on to their old way of doing things.

• Ofong is deputy chief executive at Absa Regional Operations, and COOat Absa Group CIB.

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