As French banks make their exit from Africa, Fitch Solutions highlights a silver lining for local banks—an opportunity for growth and competition.

According to Fitch Solutions, the decision by French banks to withdraw from Africa will open up new opportunities for local banks in the region.

Fitch Solutions suggests that this move could lead to increased growth and competition among local banks as they step in to fill the gaps left by the departing French banks.

“We see significant opportunities for local and regional banks in Africa despite the challenges. Some banking groups with pan-African ambitions should eventually gain enough scale to compete with long-established institutions. Increasing competition among pan-African banking groups should boost credit growth.”
Fitch Solutions

We expect credit growth to accelerate with the exit of French banks, albeit mainly in lower-risk segments, which will help preserve asset-quality metrics,“ the rating agency said.

In light of Societe Generale’s (SG) decision to withdraw from the banking markets in Ghana, Tunisia, and Cameroon, Fitch Solution stated that this move reflects broader challenges faced by French-owned banks in the African banking sector.

Fitch Solution attributed the exit of these banks to their difficulties in targeting specific sectors of the economy, largely due to their parent bank’s cautious risk approach.

This conservatism, according to Fitch, has limited their ability to tap into certain segments of the African market.

Furthermore, Fitch highlighted that French-owned banks have adhered to stricter loan classification and provisioning policies compared to locally-owned banks. These rigorous policies, while enhancing stability, can impede growth and profitability.

Fitch Solution also pointed out that French-owned banks have maintained higher capital buffers above local regulatory requirements, which has constrained their lending capacity within the African market.

The rating agency noted that French banks’ exit from African retail and commercial banking was slightly credit-positive for them.

“They are refocusing on more mature retail banking markets in Europe and on activities such as insurance, leasing, and corporate and investment banking, where they can realize higher synergies.
“Their reduced presence in Africa also aligns better with their conservative risk appetite and efforts to optimize risk-weighted assets under European banking supervision, which is tighter than the local supervision for their African peers. Increasing economic uncertainties and heightened geopolitical tensions in some African countries are also influencing their strategic reassessment.”
Fitch Solutions

Over the past six months, Societe Generale (SG) has further solidified its exit from the African market by agreeing to sell off several smaller subsidiaries in the region. Additionally, SG has initiated a strategic review to divest its 52.34% stake in Union Internationale de Banques (UIB) based in Tunisia.

Lessons for Local Banks

It is worth noting that although SG appears to be risk-averse, it is not necessarily bad because the bank managed to record a GHS 109 million profit after tax for the year 2022 compared to the GHS 184 million recorded in 2021.

This comes on the back of the implementation of the Domestic Debt Exchange Programme (DDEP) by the government which led to a general decline in the profitability of the banking sector in Ghana.

Speaking at the Facts behind the Figures series organized by the Ghana Stock Exchange in Accra, the Managing Director of Societe Generale Bank Plc, Hakim Ouzzani highlighted the overall performance for the year 2022.

“Even in this 2022 difficult year, we were able to generate respectable profits although not as compared to that of 2021. We had our operating income increased by 26 percent and our operating expenses by 9 percent.”
Hakim Ouzzani

According to research, SG had the least exposure to government securities compared to other banks. So when others were bleeding red, SG remained profitable even amidst Ghana’s DDEP.

While it may be tempting to think that SG’s exit is a positive development for local banks, this won’t necessarily be the case if local banks fail to learn from SG’s risk management practices and continue to expose themselves unnecessarily to risk. In the event of another banking sector crisis, they may not survive it.