In January , 11 2010, The United Bank for Africa, UBA plc, commenced operations at its Zambian subsidiary. It was the first South African business unit for the UBA Group.
Before it, the bank was already operating in the West Africa sub-region in countries like Ghana, Côte d'Ivoire, Liberia, Sierra Leone, Senegal, Burkina Faso and Benin. In East Africa, it had established a presence in Uganda, Kenya, and Tanzania while its services in Central Africa could be accessed, also, in three countries, Cameroon, Chad and Gabon. This means that along, of course, with its massive presence in Nigeria, its home country, the bank offers full banking services in 15 countries on the continent. Together with its presence in New York, London and Paris, the bank is clearly ahead of the competition in terms of international spread. Indeed, it has obtained licenses to operate in Mali, Guinea, Democratic Republic of Congo as well as Congo Brazzaville. By comparison, for instance, First Bank of Nigeria has presence in London, Paris, Beijing and Johannesburg. Another of its peers, Zenith Bank, has presence in Ghana, United Kingdom, Sierra Leone, Gambia and Johannesburg(see Figure 1).
The UBA strategy, according to the corporate fact sheet published by the bank as at December 31, 2009, was that, among other targets, it would have presence in “23 African countries by 2011 and in all major global financial centres.”
Propelled by Consolidation
Perhaps no other bank took more seriously to heart, the call by the immediate past Governor of the Central Bank of Nigeria(CBN), Professor Chukwuma Soludo, in the heydays of the consolidation generated boom in the banking industry between 2005 and 2007, that Nigeria banks should aspire to be global players, than UBA. Although many other banks also hearkened to that call, but having been shown the light of the overwhelming advantages that economies of scale can bring to a bank by Professor Soludo, it was the Tony Elumelu led management of UBA that quickly set about rebranding the bank as “Africa's Global Bank”. As figure 1 shows, within a period of four years the bank had become a serious player to reckon with on the continent. Its only real competition now are the South Africa Banks like Standard Bank, for example which is present in 17 African countries and EcoBank Transnational Incorporated(ETI), which is represented on the continent in 29 countries.
Not fazed by the Sanusi tsunami
However, it is stale news now that the banking boom is over. The industry is currently in the throes a crisis that set in around the third quarter of 2008 partly due to the crash of the stock market and also partly due to the effects of the global economic crisis and domestic corporate governance issues. The coming of Mallam Lamido Sanusi in June 2009 as CBN Governor and the measures he adopted to deal with the crisis have made virtually all banks to slow down on their expansion plans. For instance, the directive that banks must make full provision for their Non Performing Loans(NPLs) saw UBA reporting a loss of N7.24billion for the year ended 30th September 2009.(see Figure 2)
Ordinarily, this less than impressive performance should make a bank to review its expansion plans. In fact, Bank PHB, one of the troubled banks, has had to close its office in London and there are growing speculations that other banks are also planning to scale back on their expansion off shore . But UBA seems to be forging ahead judging by its plan to still increase its presence on the continent to 23 countries by 2011. How sensible is this move?
In a recent interview, UBA's outgoing Group Managing Director , Tony Elumelu, insisted that the offshore branches were “adding value” to the bank's operations because, according to him, “ they are all fully commercial.” He stated that the decision to open the branches in Africa, was driven by a “rigorous thought process, because our presence(in these countries) is not an end in itself, but a means to reward our shareholders. First, we struggled to get the licences in each country, then we begin the process of extracting appropriate value from the branches.”
Revealing that seven of the off shore branches are now “in profit status”, he stressed that the decision to open them was to diversify the bank's revenue base. The GMD, however, stressed that the bank planned its entry into the continent in phases, further disclosing that they will take a break after having registered their presence in African 20 countries.
First mover's advantage
An industry analyst told Business Hallmark, that the UBA global strategy was a wise one because, according to him, ”Diversification into other countries would allow the bank to control risks. It is assumed that operating conditions would not get bad in all the countries at the same time.” He also observed that UBA's foray into countries like Chad, Tanzania and Burkina Faso, would give the bank “the first mover's advantage”.
A financial expert, Mr. Muda Adeniran, also praised the bank's strategy, pointing out that it would not be that difficult for it to dominate the industry in many countries in the sub-region. He stated that,“ Banks in most of these countries are still relatively weak compared with their Nigerian counterparts. And if Nigeria is still said to be under-banked in spite of the number of banks in operation here then you can imagine what the situation would be like in poorer African countries”.
As figure 3 indicates, over 90 per cent of UBA's earnings in 2008 came from its Nigerian operations compared with 10 per cent from its off shore businesses. In other words, its Nigerian operations generate the bulk of the funds required for its international growth. Thus, if the local operating environment has become hostile as the situation is currently, this is bound to affect the global strategy of the bank.
Financial analysts have also observed that the country risk assessment of most African countries is not that healthy. So a bank operating in a foreign country could find itself contending with socio-economic and political challenges that could wreck its business model. For instance, the decision of the authorities in Ghana to direct foreign banks to increase their capital base last year, was widely said to be due to fears that the foreign financial institutions were almost shutting out the local competition.
The well publicized problems that UBA's New York branch had with that country's legal authorities a few years ago, is also a good example of the challenges that a Nigerian bank operating in an advanced economy, where the rule of law and the regulatory authorities are well equipped to carry out their responsibilities, could face. According to reports then, the bank was fined about $15million by the US Government for failing to report suspicious transactions to the Financial Crimes Enforcement Network(FinCEN)) and the Office of the Comptroller of the Currency(OCC).
But then it is also true that the bank's global strategy has compelled it to go to extraordinary lengths to ensure that its operations meet world class standards. It was, thus, for instance, one of the first banks in the country to announce its adoption of International Financial Reporting Standards(IFRS)