Could Steward Bank be to Zim what Equity bank is to Kenya?

Though the economies of Zimbabwe and Kenya may be following different paths altogether, parallels can be drawn between the two. Like most African countries, the Financial Services sector largely remains virgin territory with huge potential for growth and development.

The World Bank /Global Findex database, which provides indicators showing how people in around 148 economies save, borrow and make payments, highlights that only 23% of adults in Africa have an account with a formal financial institution. Commonly cited reasons for this are lack of sufficient money, bank service charges and long distances from financial institutions – especially for rural folk. It is against this backdrop that Kenya`s Equity Bank has shown its true genius.

Founded in 1984 as Equity Building Society, originally providing mortgage financing for the low income population, it grew steadily over the years, only to be declared technically insolvent in 1993.

However, its rapid transformation thereafter from a growing micro-finance institution into a robust bank has been nothing short of a miracle. With around 8,5 million customers, Equity Bank is the largest bank in Africa by client base. Laying a claim also to nearly half of the accounts in Kenya, the bank is the epitome of a financial institution fully embracing the ‘financial inclusion’ cause.

Back home, July 2013 saw the birth of Steward Bank after the acquisition of TN bank by telecommunications giant Econet Wireless Zimbabwe. The bank has since positioned itself as a mass-bank with a strong emphasis on providing banking solutions through technology.

Obviously the economic fundamentals in Zimbabwe and Kenya are dissimilar, and so too are their banking landscapes. Kenya’s population is nearing 44 million whereas that of Zimbabwe is around 13 million. GDP per capita (average wealth per person) is $576 in Zimbabwe and $1,802 in Kenya according to the World Bank.

The 17 commercial banks in Zimbabwe pale in comparison to Kenya`s 27, testimony to the fierce competition in the Kenyan banking space. So can Steward Bank be to Zimbabwe what Equity Bank is to Kenya?

Steward bank has set itself an ambitious target of establishing a “top five bank” within the next three years. The bank seeks to achieve this by leveraging off the power, influence and technological capabilities of Econet Wireless to reach out to the previously unbanked population.

The potency of this kind of approach was witnessed in October 2013, when EcoCash Save amassed 500,000 account holders just two weeks into its launch. This demonstrates its potential to outpace other banks as it reaps the fruits of being the first to have convergence with telecommunications.

Steward Bank`s financials for the six months to August would have made for some grim reading after it reported an operating loss of US$24,5 million, largely incurred through non-performing loans and advances, branch rebranding, upgrading of software infrastructure and staff recruitment costs.

However, it must be noted that most of the non-performing loans were inherited from its predecessor, TN Bank. The bank`s continued efforts to clean up its balance sheet will ultimately pave way for it to compete effectively.

Innovation is the hallmark of any successful commercial venture and businesses that have continually pushed the envelope have gone on to reap immense rewards. In Kenya, Equity Bank has invested significantly in creating the necessary infrastructure for a robust agency banking model. For those in remote locations it has authorised agents to offer selected services to clients on behalf of the bank. This has virtually done away with the need for individuals to visit a branch in order to transact.

Accenture Research notes that future growth in the financial services is going to be hinged, upon four fundamental factors. Chief among these is industry convergence where companies in other industries, especially retailers and mobile telecommunications operators, leverage off one another to offer services. In Zimbabwe this trend is already evident with the ties that Steward has with Econet.

The International Telecommunications Union estimates that total African mobile money transfers will exceed US$200 billion by 2015, accounting for close to 18% of Africa`s GDP. This just goes to show how mobile banking is fast becoming the new face of banking in Africa, and Steward Bank is favourably positioned to profit from this growing phenomenon.

However, optimism regarding indigenous banks is at an all-time low, given the high number that have gone under in recent times. The core reasons that have been cited by the relevant authorities have largely revolved around issues of poor corporate governance systems. To this end, Steward must continuously establish structures focused on shoring up systems and policies in line with sound corporate governance principles.

The current macro-economic environment is challenging and the banking sector has been adversely affected. Deposits largely remain transitory in nature, the incidence of non-performing loans is worrisome and in the last financial year revenues were constrained. Going forward the operating environment could pose serious problems for Steward`s continued growth.

Equity Bank is second only to Kenya Commercial Bank in terms of profitability, assets and regional spread. Together with its business model built around micro-finance, where it has sought to fill in the gap left by mainstream banks, Equity Bank has established itself as a force to be reckoned with.

With a strong capital base, competent management and the massive financial and technical clout of Econet wireless, Steward Bank is set to be a major player in our banking industry.

Post published in: Business

Leave a Reply

Your email address will not be published. Required fields are marked *