50 African Banks: Which banks have created value from their loan book?

Dear Africa interested individuals:
                                                               After completing the credit impairment assessment of thirty (30) African banks, I decided to think of a way to look at which banks are generating value-added on their loans.  This is not about how much interest a bank is able to charge on loans disbursed.  This is about which bank can generate a positive return on its loan assets after deducting the cost of non-performing assets (non-earnings assets do not factor into this.)  I will provide a play-by-play of the process I created on this occasion and give a quick summary of findings.


I decided to compute a return on loan assets (RoLA) and I started off by dividing net income into loans as stated on the balance sheet and multiplying this answer by the ratio of loans-to-assets on the balance sheet.  This generated what I call RoLA.  I then divided non-performing loans (NPLs) as determined by each bank into total assets of the bank.  Finally, I subtracted NPLs to assets from RoLA.  All figures are in percentages.  This final answer gives me what I call Loan Value Added.  The Loan Value Added takes into cognizance a bank's risk management, loan pricing, weighted averagee interest rate on loans disbursed, asset quality and what percentage of a bank's assets is its unimpaired loan book.

 Find below a summary of my findings.  As I mentioned earlier, I do not know what to expect until I am done, especially, when it is something I put together for the first time.

  1. The top five banks with the largest loan value added have an average RoE of 37.8%.   ROE played no part in computation of Loan Value Added.
  2. Thirteen of the top 15 ranked banks had an RoE of 22% or higher.   
  3. The two African countries with the highest average lending rates in Africa (Malawi and Ghana in excess of 22%) took the top five positions.  When a bank is able to disburse loans at high interest rates and still extract value-added from its loan book, commendation is due.  
  4. The first non-Ghanaian or Malawian bank in the ranking was Standard Chartered Bank Kenya followed by Standard Chartered Bank Zambia.  As it relates to Africa, SCB apparently knows how to extract positive value-added from its loan book.  
  5. The highest ranked bank from Nigeria was GT Bank in the 8th position; followed by Zenith Bank in the 17th position. Both banks are the most sought after Nigerian banks by portfolio managers. This further lends credence to the fact that the findings of my creation are legitimate and valid to be factored into investment decision making.   
  6. Fourteen (14) banks achieved negative value-added.  Africa's largest bank by reach and its largest subsidiary (Ecobank Nigeria) fell into this category.  
  7. Capitec Bank (strictly retail bank) achieved negative value-added of  -2.4%
  8. All Egyptian banks assessed achieved negative loan value added.  
  9. The highest ranked South African bank was Sasfin Bank.
  10. The top 15 banks in the ranking achieved a positive vaue-added in excess of 2%.  
  11. Eight of the top ten banks here were among the top ten banks in my Africa Banks Human Capital ranking (based on the banks selected.)  You can check yourself.
The complete ranking of 50 African banks:
1 NATIONAL BANK OF MALAWI
2 CAL BANK GHANA
3 ECOBANK GHANA
4 SCB GHANA
5 GHANA COMMERCIAL BANK
6 SCB KENYA
7 SCB ZAMBIA
8 GUARANTY TRUST BANK NIGERIA
9 EQUITY GROUP HOLDINGS KENYA
10 BANK OF BARODA UGANDA
11 STANBIC BANK UGANDA
12 FNB NAMIBIA HOLDINGS
13 FNB BOTSWANA
14 BARCLAYS KENYA
15 CFC STANBIC KENYA
16 BANK OF WINDHOEK HLDS.
17 ZENITH BANK NIGERIA
18 I&M (HOLDINGS) KENYA 
19 SBM HOLDINGS MAURITIUS
20 STANBIC IBTC NIGERIA
21 HFC BANK GHANA
22 ACCESS BANK NIGERIA
23 FIRST BANK NIGERIA (BANK)
24 KCB KENYA
25 BANK OF KIGALI RWANDA
26 FIRST RAND BANK GROUP SA
27 UBA GROUP NIGERIA
28 SASFIN BANK SA
29 DIAMOND TRUST BANK KENYA
30 FCMB NIGERIA
31 DCB COMMERCIAL BANK TANZANIA
32 CRDB BANK TANZANIA
33 STANDARD BANK GROUP SA
34 ZAMBIA NAT. COMM. BANK
35 CO-OPERATIVE BANK KENYA
36 UNION BANK NIGERIA
37. CREDIT     AGRICOLE EGYPTBeginning of banks with negative loan value-added.
38 NEDBANK SA
39 ETI GROUP
40 BARCLAYS AFRICA SA
41 COMMERCIAL INT. BANK EGYPT
42 ECOBANK NIGERIA
43 MCB GROUP MAURITIUS
44 NATIONAL BANK OF EGYPT
45 CBZ HOLDINGS ZIMBABWE
46 KUWAIT BANK EGYPT
47 CAPITEC BANK SOUTH AFRICA
48 SOCIETE GENERALE GHANA
49 DIAMOND BANK NIGERIA
50 NBS BANK MALAWI

Across different scenarios, the good banks will almost always rise to the top.  Letshego Botswana was computed but omitted, because it is not yet a deposit taking banking institution unlike other banks listed.  It has applied for a license in Botswana and was denied.  It has been approved in Uganda and other countries are awaiting decisions.  It would have come 1st if I added it. 

Loans disbursement goes beyond receiving interest income (hopefully) from borrowers and principal when due.  It is also about extracting value-added from your loan book and clearly we see shareholders will be better for it.  The top five banks in this self-created system have RoEs in excess of 30%.  I guess that is something for all of you to ponder about...  Management of companies are assessed by economic value-added.  It is time for the management of banks to also be assessed by loan value-added.

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