Why European banks are jittery about the African market

The landscape of African banking is undergoing a significant shift as European banks such as Barclays, Standard Chartered, BNP Paribas, and Societe Generale are scaling back their operations across the continent. This trend, which marks a stark contrast to the enthusiasm seen in the early 2000s, raises critical questions about the economic and financial future of Africa. Ramatoulaye Goudiaby, Director at AFIS, sheds light on the challenges driving this exodus and the opportunities it presents for local and regional players. The exit of these international banking institutions is not only limited to European banks but is part of a global trend where banks are refocusing on major markets, leaving behind emerging markets such as Africa. Factors such as economic uncertainties, the impact of the COVID-19 pandemic, geopolitical tensions, and political instability have contributed to this strategic reassessment. Banks are prioritizing regions where they can maximize their expertise and handle risks more effectively, leading to a gradual withdrawal from the African markets. This trend raises important questions about the future of banking and investing in Africa, calling for a deeper exploration of the implications for the continent's financial landscape. Despite the challenges posed by the exit of international players, Goudiaby sees significant opportunities for local and regional banks to step up and grow. She highlighted the emergence of continental champions like CARIS Banking Institution, Visa, Access, and Zenit, which are seizing the opportunity to expand and strengthen their presence on the continent. These players are developing new activities and leveraging the vacuum left by departing international banks. Goudiaby emphasized the need for local players to work together and collaborate closely to address challenges such as forex availability, correspondent banking relationships, and trade finance activities. The presence of international players previously facilitated these activities, and now, local institutions must find ways to manage and sustain them in the absence of global banks. Goudiaby expressed optimism about the ability of local banks to overcome these challenges and capitalize on the opportunities presented by the exit of international players. However, she acknowledged that there would be short to medium-term challenges to navigate, particularly in managing forex availability and maintaining correspondent banking relationships. The acceleration of French banking institutions exiting the continent, such as Societe Generale's recent decision to pull out of markets like Morocco and Ivory Coast, signals a growing trend that has been gaining momentum since 2022. While major European banks have reduced their footprint in Africa, Goudiaby believes that local banks have the capacity and financial muscle to fill the gap. She stressed the importance of regulatory compliance, interoperability with guarantee funds, and collaboration with key players such as Afrixin Bank and Africa Guarantee Fund to ensure the continuity of vital financial activities. In conclusion, the exit of European banks from the African market presents both challenges and opportunities for local and regional players. As the continent navigates this transition, collaboration, regulatory alignment, and innovative solutions will be key to sustaining and advancing the financial sector in Africa.