The African Bank Quality Benchmarking Report 1

THE 2017 AFR ICAN BANK QUAL ITY BENCHMARKING STUDY

The African Bank Quality Benchmarking Report 2

Following on from our first global bank quality benchmarking study in early 2016, and our first regional report for Europe in late 2016, we are proud to announce the first African Bank Quality Benchmarking Study. Our initial global study found that African institutions made up a remarkably high proportion of four-star and five-star banks. This new multi-client report goes much further in examining 60 African banks, assessing the

individual quality of each bank and the quality of banking on a country-by-country and regional basis.

The report will answer these critical questions:• How does each bank rate for overall quality – and how sustainable is its business model?

• Does the bank’s operating structure enhance or detract from the potential of its retail banking business? Where does each bank rank against its competitors and global peers in critical areas such as strategy, culture, customer loyalty and brand promise, as well as in financial performance?

• What messages are the bank sending to investors and other stakeholders about its business and future direction?

Who is the report for?The bank quality benchmarking system is based primarily on banks’ annual reports, including the financial statements and CEO and chairmen’s statements. The benchmarking metrics are divided into qualitative and quantitative criteria.

The deliverablesThere are two distinct deliverables available.

The first is the African Bank Quality Benchmarking Study of 60 of the top listed banks in Africa, covering 900 individual metrics. This standalone report will help you to develop an understanding of the strategy and direction of the biggest banks across the continent along with the culture of the bank, its approach to customer satisfaction and the capabilities of its management. Along with that it lays out the strengths and weaknesses of each bank, taking account of local conditions and culture.

For additional depth and insight, a second deliverable is available: bespoke bank quality benchmarking, which provides in-depth analysis and insight into your bank with commentary and recommendations for improvement.

How to benefit from our pan-African studyWe are offering you the chance to participate in the first pan-African study to benchmark the quality of Africa’s top quoted banks. Lafferty Group has a well-established track record doing this, with hugely successful projects such as the Lafferty World Cards Intelligence database starting from multi-client studies.

What are the benefits of participating in this project?First, you will get an independent and accurate report about the overall strengths and weaknesses of your bank, and the overall sustainable quality of your bank.

Secondly, you will learn about the comparative strengths and weaknesses of both your peers and your competitors across Africa, along with the sustainable quality of those banks.

THE 2017 AFRICAN BANK QUALITY BENCHMARKING STUDYRATING 60 OF THE TOP LISTED BANKS ACROSS THE CONTINENT

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Lafferty Bank Quality Benchmarking CriteriaWe use a set of financial and non-financial criteria to produce a scorecard for each bank. The following is a partial summary of the bank quality benchmarking criteria that will be used:

Quantitative criteria Mis-sellingDoes the bank mis-sell to retail customers? Consider the PPI fallout in the UK. We believe that banks that treat their customers fairly and do not mis-sell have a more sustainable business model – not least because very often mis-selling is recognised in the future, with write-downs taken against profits. Loans/Deposit ratioBack-testing of the criteria has shown that a high loans-to-deposit ratio was a surprisingly good indicator of banks that were over-trading at the time of the 2007 financial crisis. Return on assetsThis is a surprisingly tough measure for banks in the developed economies to pass. It is the measure that Warren Buffet looks at when it comes to analysing banks, not Return on Equity. Equity/Total assetsTangible equity (shareholders equity less goodwill) as a percentage of total assets (IFRS definition). This is the direction that regulators around the world are heading in, supported by analysis from the Max Planck Institute Berlin, plus Anat Admati and Martin Hellwig. We reward banks that are already there. Cash/Total assetsCash on the face of the balance sheet is a good measure of liquidity, which is surprisingly rarely looked at.

CONTENTS

Executive Summary

Methodology

The Star Ratings

African Banks: Star Groupings

African Banks: Ordered by Country

Overview of the Results

The Five-Star Banks

The Four-Star Banks

The Three-Star Banks

The Two-Star Banks

Metrics and Signals I: The Five-Star Banks

Metrics and Signals II: The Four-Star Banks

Metrics and Signals III: The Three-Star Banks

Metrics and Signals IV: The Two-Star Banks

Key Bank Quality Benchmarking Metrics

Bibliography

About Lafferty Group

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Education/qualificationsMost chief executives running banks do not possess a banking qualification. Some are lawyers, others are accountants, economists or MBAs. None of these qualifications are an adequate replacement for a banking qualification.

Qualitative criteria Strategy – Clarity or fluffRichard Rumelt says “good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them”, while fluff is “superficial restatement of the obvious combined with a generous sprinkling of buzzwords”.

Brand PromiseTaken from the world of marketing, brand promise can be defined as the standards of customer care that can be expected from all interactions with a bank. We apply simple rules of thumb which indicate whether each bank’s actions are aligned with their brand.

CultureThe concept of culture captures what Peter Drucker called the “spirit of an organisation”. We believe culture comes from the top and that management statements give indications about what kind of culture the bank has. We score banks for culture using simple rules of thumb. Not more than two ‘one-offs’ in a year

Who is it useful for? The benchmarking service is aimed at bank chairmen, directors, and non-executive directors who can use the report to judge how their bank is performing relative to its peers. It’s also useful for CFOs, heads of retail banking, corporate banking and investment banking, who can use the report to understand the long-term strategies of their competitors. Finally, it will be of interest to heads of risk, audit and remuneration committees.

Methodology In our methodology, we follow the approach described in a 2014 paper published by the Bank of England and the Max Planck Institute in Berlin. In an investigation of what the best predictors of bank failure were in the run-up to the financial crisis, the paper found that simple rules of thumb, or heuristics, were often the indicators that would have helped bank investors to make the best decisions. The paper describes how investors might have used “decision trees”, where they would run through a list of “heuristics”, with each one leading to a “red flag” if it were showing danger or, if not showing danger, to either the next heuristic or a “green flag”. Under the Lafferty methodology, all criteria receive an equal ranking.

When we tested our model on a sample of banks across the world we found a 70 percent correlation with price-to-book ratios. That is, banks that scored well on our rating system tended to be valued at higher price-to-book ratios, and banks that did poorly tended to trade at lower price-to-book ratios.

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I think it’s refreshing to have this approach, and frankly it’s good for our industry, and will also hopefully cause some behavioural changes inside the banks.

–David Nelms, CEO, Discover

Lafferty’s independent and neutral analysis focused us on areas that were blind spots. The ratings analysis showed us the specific areas that we needed to improve – and pointed us in the direction of other banks that were doing excellent work in specific

areas. Attracting a four-star rating earned us great publicity.

–Yemi Odubiyi, COO, Sterling Bank

Capitec is inspired by this recognition.

–Gerrie Fourie, CEO, Capitec

TESTIMONIALS

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CouncilsThe International Bank Quality Council (IBQC) is the latest Lafferty Council. Other Councils include: • International Retail Banking Council • International Cards and Payments Council • Global Merchant Services Council • Retail Banking Councils for Africa • The Brexit Council • Future Finance Council

Lafferty Global Research Databases World Cards Intelligence (WCI) is our online resource providing critical market and competitor intelligence on payment cards, e-money, acquiring/processing, retail banking and consumer lending. Covering 72 countries, this provides clients with access to in-depth country reports and interactive databases with the information needed to undertake comparative benchmarking and make informed decisions.

Reports Lafferty Thought Leadership Reports provide our worldwide audience with the latest thinking in bank strategy, bank quality, retail banking, cards and payments and merchant services.

Lafferty News For the past 36 years, Lafferty Group has made its name providing impartial and unique insights into the banking industry.

LAFFERTY GLOBALEstablished in 1981 by the company founder and executive chairman, Michael Lafferty, Lafferty

Group is a leading provider of knowledge, thought leadership and education to the banking and financial services industries worldwide – and has been for over three decades.

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Retail Banking Academy The Retail Banking Academy is the only organisation providing structured and accredited education in the retail banking and cards and payments fields worldwide. The Academy’s motto is: Empowering Bankers. Serving People.

Lafferty Client List

Abu Dhabi Commercial BankAbu Dhabi Islamic BankAccenture African Export Import BankAirplus InternationalAmerican ExpressAlpha NovaAppleAttijariwafa Bank BancABCBanco Mercantil Del NorteBank Negara Malaysia Bank Norwegian Bank of AmericaBank of CyprusBarclaycardBarclays AfricaBBVA MexicoBank of Ireland UKBeobankCentral African Building SocietyCaixaBankCitibankClearBankConCardisCornercardCreditbank Lebanon

Dah Sing BankDBS BankDiamond BankDiners Club DiscoverDubai FirstEcobankEdgar DunnElavonEmerging Markets Payments Escher Group EVO Payments InternationalFair Isaac Services Fexco Merchant ServicesFirst Bank of NigeriaFirst DataFirst Gulf BankGalitt US Global BlueGeneral Atlantic IBM/APC In-Solutions Global Intesa SanpaoloJCB InternationalKAEMarketing TechMashreq Bank

MastercardMBNA MaybankMcKinseyMillennium BCPNetwork InternationalOnline Business TechnologiesOpenway EuropePayMayaEpay Ltd/PEXPost Office UKPrenax Inc RCS Cards ScotiabankStanbic Bank GhanaStandard BankStandard Chartered Bank Sterling BankTD BankTenacity Financial ServicesThe Strawhecker Group TSYS Processing EuropeUnified Payments Services Union Bank of NigeriaVisa Western UnionAnd many more

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Caroline HastingsDirector of Councils and Client Relations

Lafferty Group

T: +353 98 39107M: +353 87 739 2647

E: caroline.hastings@lafferty.com

Michelle LoftusBusiness Development Executive

EMEALafferty Group

T: +353 98 39106M: +353 87 173 6297

E: michelle.loftus@lafferty.com

Lafferty Group: Phone: +44 203 008 8415, Email: enquiries@lafferty.com Location: 2 Queen Caroline Street, London W6 9DX

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