African banks adopt robust measures against lockdown losses

South African measures

Some mitigation measures have had a rapid positive impact on the markets. For instance, under advice from the country’s central bank, South African banks decided to suspend dividends for this year.

This led to an immediate 10% rise in bank stock prices on the Johannesburg Stock Exchange, as investors calculated that the boost to bank finances more than compensated for the loss of dividend income. Other banks across the continent have also opted for a moratorium on dividends for the year.

Banks must prepare for big falls in earnings but current projections feel like guesswork rather than concrete estimates. South Africa’s Absa says that its profits will be at least 20% down but all banks could face much bigger falls, as lower benchmark rates mean lower earnings, exacerbating the fall in transaction volume and higher rates of loan default. However, stress tests carried out by PwC concluded that South Africa’s big five banks would all be able to withstand the crisis, even under the worst-case scenarios.

Changing bank culture

The huge rise in digital banking over the past few years has allowed banks to continue operating and customers to continue accessing services despite the closure of branches. Indeed, many banks have actually increased the level of their digital investment to cope with the anticipated rise in demand.

It may take some time for figures on the scale of the actual increase in demand to be published. Some Ghanaian banks have removed the fees they charged on e-banking transactions to both boost the uptake of e-banking and support their customers during the pandemic.

It was widely reported in Nigeria that Access Bank had decided to permanently close more than 300 branches and make 75% of its 28,000 workforce redundant, but this has been denied by the bank. A spokesperson said that the bank has only closed branches temporarily, as instructed by the CBN, to reduce the risk of Covid-19 infection.

Access Bank has had 29m customers since last year’s acquisition of Diamond Bank, giving it perhaps the biggest customer base of any African bank. Some rationalisation of the bank’s network is possible as the two systems are merged.

In common with many other sectors, African bank employees have worked from home wherever feasible. In many cases, this appears to have worked better than executives had anticipated and some banks say that they may retain higher levels of home working in the long term. This can reduce infrastructure costs and allow employees to integrate work and home life more easily.

The chief executive of South Africa’s Investec, Fani Titi, said: “We have established that we can work very effectively from outside of the building. In the fourth quarter of the year we may see an increase. But I don’t think we’ll ever get back to a situation where you will have approximately 95% of your people in one place.”

How many of the changes, quite a few positive, induced by Covid-19 will remain in place once the lockdowns have been completely lifted? Time will tell but as often happens, changes are often forced by circumstances and Covid-19 may have changed banking culture in Africa to quite an extent.

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Isaac Khisa contributed to this article that was first published in the African Business Magazine.