The African Business Review Jan-Feb 2014 | Page 15

Box 1: Margins well above the banking sector
average

Nominal interest rates on loans in sub-Saharan Africa average
20% (for the period 2008–2010)4, well above the global
average of 13%. With the exception of Central Asia (24%), no
other region of the world achieves the average rates recorded
in Central Africa (34%), West Africa (19%) or East Africa
(19%). The same applies to real interest rates on loans, which
average 10% in sub-Saharan Africa (for 2008–2010), compared
to a global average of 7%, and less than 5% in most developed
markets. Net interest margins – more revealing because they
isolate the impact of refinancing costs – follow the same pattern.
Central Africa, followed by West Africa and then East Africa,
have the highest margins in the world (7.2% on average across
sub-Saharan Africa, compared with 3.5% worldwide). If we
also include non-interest revenues (commission, etc.) in the
calculations – what is equivalent to calculating the average rate
attached to a banking asset – the levels attained by the African
banking sectors look even more impressive. Banking assets in
sub-Saharan Africa generate average revenues of 12%. These
rates can be as high as 20% in countries like Malawi, Sierra
Leone and the Congo.

Figure 1: Return on equity in Africa’s banking sector (2007–2010)

Figure 2: Return on equity in the banking sector worldwide (%) (2007–2010)

recorded in Africa: they are among the highest in the world at 1.4%,
just behind Latin America (1.6%). These profitability levels reflect the
margin levels African markets are able to absorb (see box 1).

Potential far from saturated

As well as being very profitable, the African banking sector also offers
real potential for growth. Sub-Saharan Africa has the world’s least
developed financial sector. Excluding South Africa, its banking sector
is around one tenth the size of China’s leading bank and comparable
3.

4.

in size to Germany’s tenth largest bank. Even taking GDP differences
into account, Africa’s financial sector remains highly under-developed,
with a bank usage rate5 lower than 20%, by far the lowest in the world6,
and a penetration rate of around 30% – less than half the average for
other developing nations. Local banks are therefore missing out on a
high proportion of their markets’ economic activity. In addition to its
potential for growth, the banking sector also has significant potential for
improving productivity. Most African banks are small-scale operations,
relatively inefficient because they are not able to generate economies of

Moreover, these figures understate the real profitability levels of foreign banks operating in
Africa, since they are influenced by the performance of Africa’s large state banks, which can
have large market shares and very poor profitability.
All the averages in this paragraph are calculated over the period 2008-2010, except where
otherwise stated, for sub-Saharan Africa with the exception of South Africa, the Seychelles
and Mauritius.

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