As the number of individuals in Africa with high net incomes (the odd million or two) increases, so does the proliferation of 'private banks'to service their special needs. The Absa banking group is leading the South African charge. TOM NEVIN talks to WiIf Robinson, managing executive at Absa.
African Business: Absa is putting down roots all over Africa. How big is the opportunity?
WiIf Robinson: Sub-Saharan Africa is again beginning to attract the attention of the rest of the world. Current wealth in Middle Eastern and Asian countries is sufficiently exposed to its own geographical region and investors there are looking for new geographical outlets. They see Africa as an exciting growth area.
Money is arriving from the East and the Middle East, as are funds from South Africa, at the moment the biggest investor in Africa. Capital flows from Europe and North America are also chasing the continent's resources. Uganda, Tanzania, Mozambique, Botswana and Angola - these are countries where huge economic activity is taking place.
AB: A major focus in your African new-business drive is on private banking. Is Africa becoming a worthwhile new hunting ground for ultra high net worth clients?
WiIf Robinson: This economic resurgence means opportunity. As an example, many of our clients in South Africa are buying land in Zimbabwe because it's cheap at the moment and if it goes up in value, it'll go up big time, and will create wealth.
That's happening all over sub-Saharan Africa and we're seeing many more high net wealth clients being created in an emerging middle class. It's said there are more dollar millionaires in Nigeria than in all of Africa. If that's true, then there's a market there we haven't really begun to understand. There is huge potential.
AB: How big is the potential?
Wilf Robinson: Speaking for South Africa, we operate on a supposition of some 25,000 families with a net worth of over R10m ($1.5m) Estimates vary from 20,000 to 75,000. It's difficult to tell.
AB: Where else does Absa operate a private banking service?
Wilf Robinson: We don't yet have a private bank on the ground north of the Limpopo, but we're looking hard at the numbers and the first one could be in place in less than six months.
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Absa's manager WiIf Robinson
We're busy with a study that will tell us where our private banking services should be represented. It's a desktop study right now, and that'll identify where we should be, where the potential is, and what staff and infrastructure are required.
AB: How do banks deal with the flood of dirty money being dumped into the African laundry basket?
Wilf Robinson: It's a headache and poses severe risks for banks chasing big personal money. We are obliged, in terms of international legislation, to ascertain the source of our clients' wealth to our satisfaction. If we have any suspicions, we're obliged to report them. If you don't, you could be fined up to RlOOm ($15m).
The obligation is to gather a lot of information on your client, and in that process ascertain the source of their wealth. You don't have to be a policeman or a CIA agent, you just have to be satisfied. The challenge today, post 9/11, is to ensure that you're dealing with people of integrity.
Legislation in South Africa, Western Europe and the US is onerous in this regard. We always have to be sure we're dealing with the correct calibre of clients, and be satisfied their money was earned legitimately and not from blood diamonds, laundered racket money or some such.
There's a global trend among banks, since September 11, to deal only with
There's a global trend among banks, since September 11, to deal only with credible organisations and individuals. Legislation in the UK, for example, has resulted in a red tape, bureaucratic nightmare in that banks insist they'll only deal with organisations and individuals they believe are credible, ethical and morally correct. We're seeing the same here.
Customers can get quite testy about all the requests from banks to prove source of funds, identity and gathering documentation in terms of the new legislation. But it's all about relationships. You need people on the ground. Private banking is about long-term relationships, and you can't build that land of relationship if you're sitting in Cape Town or in London. From that perspective, we'll have die edge - because we'll be on the ground, available and convenient.
AB: Understanding cultures is amongst the first laws of relationship marketing, so how do the managers of Absa Bank, as an example, bridge formidable cultural divides across Africa?
WiIf Robinson: It's all a case of understanding the market. Much of the rest of the world doesn't understand Africa's diverse cultures and way of life - we're part of Africa.
Western countries also tend go for big individual deals whereas we focus on the relationship. Diversity workshops and training make up one element. Another is an information gathering strategy to discover the cultural norms and issues of the population group we intend dealing with and engendering this awareness at training sessions.
We apply the analogy of South Africa's own transition in bringing pre-democracy mindsets to where the country is today. Integration in the workplace created tolerance rather than resistance - once tolerance was achieved, understanding and association naturally followed.
AB: When Absa expands into a foreign country and acquires a local bank, how much of the new acquisition is Absa in culture and operation, and how much remains of the bank's former persona?
Wilf Robinson: We prefer to establish our brand from the word go by installing senior managers. And there are good reasons for that. They are there to implement best practice procedures. That's normally the biggest benefit the acquired bank can get, very often turning the bank's profitability around.
The majority of the bank's staff will stay on and they will have the advantage of immediate retraining. We don't necessarily change the acquired bank's name straight away; but we might when the time is right.
After all, our ultimate goal is to have a recognisable presence throughout sub-Saharan Africa. Essentially, because we want to maintain a diversity of culture, they will always be seen as local banks.
AB: Does Absa wait for the establishment of a business settlement before venturing in?
Wilf Robinson: That certainly was the traditional approach. We would follow our clients into their markets, but that philosophy has changed. We will now extend our products into a receptive and profitable client base and grow from there, but it's a bit of both, and we will explore every opportunity.
Financial services companies are moving into Africa for reasons that are not only commercial. While that might have been the case in the recent past, if you look at the banks we're acquiring now, they are retail and mainly personal bank focused, with some business and corporate operations, but these are quite small.
There's a reason for that. You take your core competency, your strength in the domestic market, and you find new markets for that - in this case, the continental African market. So all Absa business units look at their product range and decide which will be a successful continuation into Africa.
The real challenge is to identify South Africa. We believe it could be Africa's financial services centre, just as Dublin has been for Ireland in Europe.
AB: Is Absa's arrival in foreign African cities causing resentment in the local financial services communities?
WiIf Robinson: Not outwardly or obviously. But there must be some antipathy, bearing in mind the competitive nature of the business. We take over an existing operation that might be floundering and needs some attention.
The best acquisition opportunities are those in need of a turnaround. Often we're in these countries saving companies and jobs, and it helps to be seen as a rescue operation and growth promotion. Our experience so far has been positive.
Private banking - can anyone play?
It depends on the bank, but if you have personal wealth of between $400,000 and $im you'll be invited. A million dollars gets you into the private banks around the world and Absa has adopted the same criterion.
A wildly fluctuating rand-dollar exchange rate led Absa into pegging the entry level at Riom ($1.5171) for South Africans. But it's never quite as simple as that.
Wheels turn within wheels, and divisions exist within private banks. For example, Absa also has a "special needs family office" for which entry qualification demands Rioom ($1501) plus.
On average, private banking starts at R8m ($i.2m) to R5om ($7.5171). Upwards of R5om opens the door to international private banking.
Personal banking with Standard Bank, Nedcor and Rand National Bank are similar; where priority suites are aimed at the mass affluent individually worth from R4oo,ooo up to Riom ($1.5171), with private banking entry at Riom plus.
So, how many customers does it take to set up a private bank. "Everything depends on the scale of the client,"advises WiIf Robinson, managing executive at South Africa's Absa Bank. "You can have 10 customers, but they all need to be billionaires to make it worth the bank's while. Or you need around 200 clients each worth R2om-3om ($3-$9171) to start a small office. Essentially, to make it cost-effective, a bank would leverage-off a local platform and with networking and satellite communication the way it is, it wouldn't have to replicate the entire system at a remote location. It could use infrastructure in South Africa and have a front end in the foreign country."
But it all comes down to income.The relative cost means that a bank needs at least 100 clients for a small three- to four-man team, or 10 or 20 of the really seriously wealthy clients. From a billion-rand client, the bank's income would be about a million rand a year, but just R2OO,ooo to Rjoo.ooo from a Riom to R2om ($i.5-$3m) customer.
Labels: Africa's Millionaires, African Millionaire of the Week, Private Banking Africa