40 African Banks & Debt Accumulation: Is less debt more or is more debt less? Updated

Dear Africa interested individuals:

                                                       African banks are raising capital across the continent to adjust to regulatory requirements and the challenges of the competitive environment going forward.  When is debt accumulation too much?  Which banks are utilizing their debt optimally?  Find below a list of 40 African banks with a breakdown of those that are not debt burdened and those that are.  An assessment is also undertaken to determine which banks got positive returns on their debt in excess of what it cost them.         (More details will likely be extracted at a later time and I will update.)   

1. All six (6) Kenyan banks selected are not debt burdened and have generated positive returns on debt usage.

2. All six (6) Nigerian banks selected are debt burdened and have generated negative returns on debt usage.

3. Nine (9) banks did not borrow in excess of the cost of their property and equipment.  All nine banks achieved RoEs in excess of 20% and all are not debt burdened and generated positive returns on debt usage.  2 of the banks are from Egypt, 2 from Malawi, one (1) each from South Africa, Kenya, Uganda, Botswana and Namibia.  All the banks are located in the southern part of Africa except for Egypt.

Through the analyses I did, I have determined that the debt-to-capital employed threshold level where debt becomes of a pull-back  than a push-forward is in excess of 30%.  Interestingly enough, three banks crossed over slightly and were still able to generate a positive return from their use of the debt.  The banks are Equity Group Kenya (32.2%), NBS Bank Malawi (31.3%) & Bank of Kigali Rwanda (30.8%).    The lower half of Africa is apparently blazing the trail when it comes to efficient management of resources.

4. Egyptian banks use minimal debt; two of the four banks had a debt level less than 5% of capital.  

5. No Standard Bank Group subsidiary selected was debt burdened.

6. Four (4) out of five (5) banks with double-digit average interest rates on debt, kept their debt-to-capital employed levels below 20%.  The only bank that did not: (ETI), is debt burdened and has a negative return score for efficient debt utilization.

 7. Africa's largest bank by assets is not debt burdened; Africa's largest bank by reach is.  The largest contributor to profit for Standard Bank is the South African operations.  The largest contributor to profit for ETI is the Nigerian operations.  That sums up the story of the two in a nutshell. 

8. The bank with the best return on debt utilized among banks that have at least 10% of capital employed sourced from debt is National Bank of Malawi.  It has a return on debt of 260%. 

9. The bank with the best use of total capital employed ( at least 10% of capital being debt) is Ghana Commercial Bank (GCB).  GCB also has the best return on assets (6.62%) among all forty (40) banks analyzed. 

10. The last bank among the non-debt burdened banks is SBM Holdings Mauritius and it also has the lowest return on capital employed among all non-debt burdened banks. 

11. The two highest ranked Nigerian banks on the list (let us call them the best among the worst) among all six Nigerian banks selected are privileged to have received capital from the International Finance Corporation (IFC).  GT Bank received debt capital and Diamond Bank received equity capital.  I guess IFC knows a thing or two...

12. Thirteen (13) banks with at least 10% of capital in debt, generated enough pre-tax income in one year to wipe out their debt.  They are:  National Bank of Malawi, FNB Namibia, SCB Ghana, Ghana Commercial Bank, First Rand Bank, FNB Botswana, Ecobank Ghana, Kenya Commercial Bank, Bank of Kuwait Egypt, Standard Bank Group, CFC Stanbic Kenya, SCB Kenya and NBS Bank Malawi.

13. Bank of Baroda Uganda has the thinnest collateral on its debt among banks that are NOT debt burdened.  It is the most likely bank to be sent reeling in this category if a series of serious, negative events happen simultaneously.  

14. The bank with the most optimal use of debt with at least 20% of capital in use as debt is Ecobank Ghana.   The bank ranked twelfth (12th) overall among the forty (40) banks selected. 

15. CRDB Bank Tanzania is having the most difficulty in my opinion (among non-debt burdened banks) putting the debt portion of its capital structure to effective use. 

Debt is cheaper than equity; after an optimal point it gets way more expensive in more ways than one and diminishing rates of return set in.  African banks find yours before you get found out.

It is time for investors to ensure that African banks they invest in, keep their debt-to-capital levels at or below 30% where the benefits of debt accumulation outweigh the risks. 

                                    

 24 banks out of 40 are not debt burdened as at last fiscal year end and have generated returns in excess of their cost of debt and related exposures.  Sixteen (16) banks are debt burdened including all Nigerian banks selected for this project.  CAL Bank must put its highly ranked human capital to good use and quickly to get out of its debt problem.  

The play-play of what I computed and structured to reel off the above findings cannot be revealed through this medium.  Thanks for your understanding.  

Kindly note that a bank must have debt on its books to be selected among other criteria. 

1. CREDIT AGRICOLE EGYPT
2. COMMERCIAL INT. BANK EGYPT
3. SCB ZAMBIA
4. BARCLAYS KENYA
5. STANBIC BANK UGANDA
6. NATIONAL BANK OF MALAWI
7 FNB NAMIBIA HOLDINGS
8. SCB GHANA
9. GHANA COMMERCIAL BANK
10. FIRST RAND BANK GROUP SA
11.FNB BOTSWANA
12 ECOBANK GHANA
13. KCB KENYA
14. KUWAIT BANK EGYPT
15. STANDARD BANK GROUP SA
16. CFC STANBIC KENYA
17. SCB KENYA
18. NBS BANK MALAWI
19. BANK OF BARODA UGANDA
20. CRDB BANK TANZANIA
21. EQUITY GROUP HOLDINGS KENYA
22. DIAMOND TRUST BANK KENYA
23. BANK OF KIGALI RWANDA
24.SBM HOLDINGS MAURITIUS

25. ZAMBIA NAT. COMM. BANK

26. BANK OF WINDHOEK HLDS.

27. MCB GROUP MAURITIUS

28. NATIONAL BANK OF EGYPT

29. I&M (HOLDINGS) KENYA

30. NEDBANK SA

31. GUARANTY TRUST BANK NIGERIA

32. DIAMOND BANK NIGERIA

33. ZENITH BANK NIGERIA

34. ETI GROUP

35. UBA GROUP NIGERIA

36. ACCESS BANK NIGERIA

37. FIRST BANK NIGERIA (BANK)

38. CAPITEC BANK SOUTH AFRICA

39. BARCLAYS AFRICA SA

40. CAL BANK GHANA

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