Banking sector competition nears fever pitch
Mbongeni Mguni | Friday October 25, 2013 16:08
While for nearly 30 years into the early 1980s, Botswana had only two commercial banks - Barclays and Standard Chartered - today the local sector has 10 aggressive players targeting various market strata.
In addition, major microlenders, such as Letshego and Blue, have emerged over the years to further eat away at the market, while the country’s three statutory banks are at varying levels of commercialisation.
In various forms, the National Development Bank, Botswana Building Society and Botswana Savings Bank all have aspirations of entering the commercial space, having had their niches “invaded” over the years by banks.
In a wide-ranging interview recently, Desai told BusinessWeek that all banks were, over the decades, guilty of a complacency that was untenable in the current market. He said while the local banking sector had largely escaped the worst of 2009’s global financial crisis, local consumer spending had been transformed.
“The environment for banks is tough and getting tougher,” he said.
“We were lucky the recession’s impact was shallow, but there is always the trickle down effect, meaning that the consumer has become more cautious in spending.
“As a banking sector, we are looking at a shrinking consumer spending base and the difficulty is also that not only is the sector more competitive, but we also compete with alternative lenders such as micro-finance institutions and other avenues.
“This means the banking sector as a whole has to review its value to the common man in the street and not take for granted the complacency of decades past, that all banks in the country have been guilty of.”
While Barclays’ history in Botswana dates back to 1950, Desai said the proliferation of competitors in the sector meant cautious consumers could migrate from one entity to the other, without being held back by feelings of loyalty.
“Today, if someone doesn’t like the service being offered, they know there’s another out there who could perhaps do better,” he explained.
“You’ll be surprised at how often people move across banks for very small things; we have to be on our toes all the time.
“One has to understand that the customer is king and this is something that we want to do best and foremost in the market.
“All banks have to up their game in terms of products and services in order to entice these cautious consumers who are now saying ‘do I really X or Y.’”
Desai’s comments are supported by Bank of Botswana (BoB) data indicating not only greater competition within the sector, but also a narrowing of the gap between the biggest, more well established players and the smaller actors.
In its 2012 Banking Supervisory Report, the BoB noted a deceleration in banking profitability due to higher provisions for bad loans as well as rising operating expenses, the latter as a result of banks reaching out to the “unbanked” for new profit pathways.
The drive for the “unbanked” has seen the number of bank branches and sub-branches rise from 87 in 2008 - when the last bank debuted - to 105 last year. The number is expected to rise further in 2013 due to the entry this year of two Indian banks.
By reaching to the unbanked, banks have been able to uncover new consumers and thus protect their profitability, even as competition has increased.
All banks have also robustly invested in digital banking channels to increase access to their products and services as well as to reduce their traditional reliance on interest income.
According to the Barclays chair, the wider choice in banking is keenly appreciated by corporate clients, who are often willing to take their business elsewhere.
“There is no such thing as a bank for life,” he noted.
“On the retail side, it may be easier to retain a client, but it’s much more difficult on a corporate level.
“Clients on the whole are no longer just saying ‘give me money’ they are asking ‘how do I do this?’
“If we don’t rise to meet these challenges, there will be an impact on our results, but no one bank can say ‘I will always be on top of the world.’”
With cutthroat competition in service, product delivery and digital channels, older banks such as Barclays, hope their history over the years of financial and economic vicissitudes, will count in the hearts of consumers.
Partly due to their established duopoly, Barclays and Standard Chartered stood strong in the four decades between their establishment and the entry of the first formidable rival, First National Bank in 1991, while several other banks rose and fell.
One of these was the Bank of Credit and Commerce Botswana (BCCB), which was licensed in 1982, remained under the shadow of the duopoly and eventually collapsed in 1991 due to troubles with its parent company.
Other banks to arrive and depart in those four decades include ANZ-Grindlays and Zimbank. As they collapsed in the early 1990s, each was “swallowed” either by FNBB or the fast-rising Stanbic which established in 1992, giving new meaning to the “dog-eat-dog” phrase.
The Bank of Credit and Commerce Botswana (BCCB) enjoyed government support but collapsed three years after establishment in 1995 due to policy and operational challenges.
“We have been around for a long time, have the largest footprint and we need the public to know that the board and management are committed to ensuring that we respect our heritage in terms of what it means to Batswana,” the Barclays chair stressed.
“We understand the important role we play in the hearts and minds of Batswana and are committed. We cannot rest on our laurels and say things will automatically follow.”
The biggest winner in heightened competition among banks has been the consumer, who can now shop around for better terms and conditions, as well as personalised service. With interest rates at an all-time low and banks out to expand their loan books, the cautious consumer can afford to laugh all the way to the bank.