Bank One: from Africa, for Africa
Bank One has the objective to become the best bank for investors to access Africa. What do you believe that investors in Africa are looking for from their banking partner, based on your own experience?
CARL: In my experience, any bank can offer you a bank account - that’s a commodity. What investors are really looking for is a trusted advisor that allows them to achieve profitable business within Africa. Of course, a robust, secure and reliable transaction banking platform is key but, above and beyond that, investors are also looking for a banking partner with intimate knowledge of the sub-continent to assist in navigating the complex business operating environment across 53 diverse jurisdictions and multiple legal, tax, regulatory, and geo-political frameworks.
Bank One is well positioned to assist clients who are seeking to invest in Sub-Saharan Africa precisely because of our unique onshore and offshore capabilities. We are located offshore in Mauritius and our team is able to provide our clients with expert advice for investing into Africa from the comfort of a safe jurisdiction to help them ring-fence their capital flows into the continent. We also have the added advantage of our local network in East Africa which can be leveraged as a safe destination for investments and upstreaming of dividends. Our deep understanding and knowledge of the region adds value to our clients’ investment decisions in a dynamic and challenging environment.
Africa is not your typical Rolls Royce market. It is more of an off-road market - so you need a trusted and reliable SUV that can adapt to the terrain. I would characterize Bank One as a Land Rover Defender that is ideally suited to travel off-road no matter what the terrain. Our strength is derived from two main factors – first, we are trusted advisors with a real understanding of Africa and, secondly, we open up opportunities through our network and make them available to you. It is our relationships and the intimate knowledge that you cannot replicate. You can only know Africa if you are there!
How would you describe Bank One’s Africa strategy and footprint? Are there any specific areas where you are seeing increasing demand? To what extent is Bank One seeking to build new partnerships in Africa?
CARL: Bank One is a 50/50 joint venture between CIEL Finance Limited and I&M Holdings PLC. We are very privileged to have two large groups as shareholders: CIEL Finance Limited a subsidiary of the CIEL Group, a Mauritian conglomerate with a significant footprint in Africa, and I&M Holdings PLC, a financial services group with a presence in Kenya, Rwanda, Tanzania and Uganda more recently. The combined footprint of our shareholders provides us with a physical presence in six countries in Africa, which no other local bank currently has. That is our unique value proposition. We are present both onshore and offshore, and this uniquely positions us to help our clients invest in Africa via the Mauritius jurisdiction known for its superior governance, banking system and regulatory framework. We, then, downstream those investments into our clients’ chosen markets through our onshore network with profits being channeled back through Mauritius. I call it the onshore / offshore value proposition.
In terms of our other strategic partnerships, we try to form partnerships with the top tier banks in chosen markets. We have deepened relationships with DFIs, and the African Trade Insurance Agency, which helps us enhance lending structures in the more challenging markets. We believe that in order to navigate effectively in Africa, we need to rely on the African DFIs. If you try to get funding outside of Africa, there is often a disconnection – they might not understand the difference between Mali and Malawi or Mauritius and Mauritania. You would be surprised at some of the comments we still hear from outside international institutions.
JAMES: From our vantage point in Mauritius, Bank One has a unique position as an African bank with offshore capabilities. Our target market is Sub-Saharan African banks, which we know and represent, and are able to provide relevant products and services. As an offshore bank, we bring additional benefits to support African banks by leveraging our global networks and relationships. As Carl mentioned earlier, with the support of our shareholders, CIEL Finance and I&M Holdings, we are present in many parts of Africa. We enjoy a mutually beneficial working relationship with our shareholders where each party leverages on his core strengths. We benefit from I&M and CIEL’s on the ground relationships and diligence whilst they benefit from our capital, structured finance, custodian and cash management support.
In addition, Bank One has been increasing its coverage and credit appetite in West Africa where we have exposures to financial institutions in Nigeria, Ghana, Senegal, and Cote D’Ivoire. We are grateful for the support of Amethis Investment Fund Managers based in Cote D’Ivoire, who also form part of our shareholding structure through CIEL Finance.
Finally, Southern and Central Africa remain attractive to us too. We currently finance and service commercial and central banks in Malawi, Botswana, Namibia, South Africa, Angola, and DRC where we are able to offer relevant solutions that might not necessarily be available from the international banks.
When it comes to engagement with other banks in Africa, whether central banks or commercial banks, do you see any need for capacity building, and is this an area where Bank One can offer support?
JAMES: I have already outlined our strategy for Africa, which is focused on widening and deepening our lending and corresponding relationships with financial institutions. In short, we want to be the banker of banks in Sub-Saharan Africa.
In these current times, Compliance and Know Your Customer (KYC) is the prerequisite of the day. Against a backdrop of tighter AML regulatory framework internationally and the application of Basel II and III norms whilst the African banks grapple with their own regulatory challenges, international banks have largely withdrawn their support for African correspondent banking structures. They are no longer lending aggressively into Africa and, in many cases, they are exiting the markets outright. Just as we have seen a few years back with HSBC and Barclays, nowadays the likes of Citibank and Standard Chartered are also de-risking from the region. As a result, this situation has created an opportunity for Bank One to step in and fill the gap for these African commercial and central banks where it can provide lending and trade finance solutions, as well as cash management support as a custodian for their FX and some of their local currency positions.
As Bank One continues to expand its activities across Africa, it is getting good visibility in some of the markets for the product and services that it is able to provide. We have successfully deepened our relationships with several Central Banks and have been able to provide currency swap solutions for their liquidity management. To date, we have on-boarded several banks in Southern, Central and West Africa and getting new requests as we increase our visibility. We are translating these synergies to develop a Sub-Saharan Africa ‘Star Alliance of Network Banks’.
Our ultimate goal is to develop cross-selling opportunities where we first refer proposals within our Alliance of Network Banks for Trade Finance, Custody Services, and Treasury products whilst providing structuring skills, risk-sharing opportunities, competitive USD liquidity and offshore cash management capabilities. We are quite excited about the growth prospects of this line of business for Bank One.
CARL: It also adds a development angle to our commercial banking activities. We are able to help countries with challenges to balance their seasonal fluctuations in terms of FX availability and help stabilize their economy. That is typically a mandate for the development banks, but their focus is on large infrastructure projects which leaves the short-term liquidity management for us. I think, speaking for James and myself, coming from that space, we are able to connect and bridge the gap between development and commercial banking, and in so doing, achieve unique hybrid solutions.
The African Continental Free Trade Agreement (AfCFTA Agreement) is currently expected to become operational on 1 January 2021. What will be the likely benefits of this agreement in terms of boosting intra-Africa trade? Do you believe that there will be new opportunities for leading market players such as Bank One, and for the Mauritius jurisdiction more broadly?
CARL: It has been a long time coming. It is necessary and I still cannot believe it is really happening! Ninety percent of Africa is on board but there is a huge piece missing which is Nigeria. Without the Nigerians, it really won’t work. You need the political will for it to come through. I remain cautiously optimistic that AfCFTA will facilitate much needed growth in intra-Africa trade. Currently, intra-Africa trade accounts for 12% of total trade on the continent. Compared to Asia and Europe, there is a huge trade gap which can easily be filled by dropping the non-tariff barriers and developing the infrastructure to allow cross-border movement of goods, people and services.
Mauritius is geographically well-positioned to harness the potential of AfCFTA and act as a nexus along the India-Africa Trade Corridor, leaning on its heritage with India. The new AfCFTA rules state that for you to qualify for preferential access to the continent, there needs to be a value addition element. There has to be a local component of at least 30% if I am not mistaken. If Mauritius is smart enough to take advantage of the opportunity, we could import goods in semi-finished form, add value in Mauritius, and then re-export it to Africa.
The other advantage that Mauritius has is from a financing perspective. Mauritius remains the last investment grade country on the continent, particularly after the recent downgrade of South Africa. It can act as the de facto offshore financial centre for Africa such that all FDI, trade and investment flows can be channelled through Mauritius. However, we need a concerted effort to engage with all other partners and create awareness of the advantages of the jurisdiction so that this can happen.
Furthermore, from a governance and legal perspective, Mauritius is considered safer given the country’s status as an international arbitration centre. Add to that the fact that Mauritians are bilingual (English and French), you have all the ingredients for Mauritius to take advantage of this opportunity.
JAMES: AfCFTA will keep money within Africa for longer. Indeed, African companies will be doing business with each other, thus preventing money from leaving the continent to go to America, Europe, China or anywhere else. Once financing comes into Africa, it will be traded, circulated and re-invested on the continent.
Bank One was appointed by the African Export-Import Bank (Afreximbank) to act as one of its Trade Finance Intermediaries (TFI) in Mauritius in August 2020. What can you tell us about this partnership with Afreximbank and what activities will you be undertaking on its behalf? Will trade finance be a key pillar of Bank One’s service offering in Africa moving forward?
JAMES: Our relationship with Afreximbank spans across a number of products and initiatives. As a Trade Finance Intermediary in Mauritius, Bank One coordinates and works closely with Afreximbank in an agency capacity to support all their banking activities. They rely on us for groundwork, market intelligence, due diligence as well as custodian services where we manage and monitor specific facilities on their behalf.
Furthermore, we partnered with Afreximbank through its Trade Facilitation Programme (AFTRAF) to increase our Financial Institutions lending and Trade Services activities in Sub-Saharan Africa. Lending to financial institutions across Africa also forms part of the mandate for Afreximbank and DFIs generally but they cannot do it alone. DFIs are, in fact, inclusive institutions whereby the more commercial banks are working in unison with them the more beneficial it is for the entire continent.
Bank One is an extension of that particular mandate for Afreximbank. In partnership, we are looking at jointly taking on exposure and supporting commercial banks in Africa that meet our lending criteria. Through this alliance with Afreximbank, we are able to provide numerous products, be it guarantees, Irrevocable Reimbursement Undertaking (IRUs) or other types of credit enhancement, allowing us to increase our lending capacity while defeasing the credit risk. Bank One and Afreximbank will further collaborate to provide solutions for commercial banks that are practical, less costly and Africa-driven.
On sustainability, Bank One is working, with the close support of a major Development Finance Institution (DFI), towards a systematic approach in the form of an Environmental & Social Management System (ESMS). How will this initiative help to embed the sustainability agenda into Bank One’s operations? How do you see the sustainability agenda unfolding in the African banking landscape more broadly?
JAMES: I think even outside the DFIs, sustainability and awareness of the environment and our social standing should still be something that we value as a business.
CARL: It just makes good business sense.
JAMES: Indeed, it makes sense for us, our children and our children’s children. I mentioned earlier our relationship with IFC. They have been one of the driving forces for Bank One to develop and implement ESMS policies in our lending, management and monitoring frameworks.
CARL: Proparco and DEG are also part of our long-term funders and they have both helped in terms of capacity building at the Bank. We have also recently on-boarded a Sustainability Manager, Sanjeeve Jhurry, which clearly shows that we are taking sustainability seriously and are decidedly focused on building sustainability within our operations. All the lending that we do, given our commitments to Proparco, DEG and IFC, must have a sustainability component. We cannot get past it and for us it just makes good business sense that whatever lending or activities we do is environmentally and socially responsible.
The COVID-19 pandemic has accelerated the drive towards digital transformation across financial services and banking. Do you see the pandemic as driving new forms of collaboration between FinTech start-ups and traditional banking players? How should banking players in Africa adapt their strategies in this new era?
CARL: We have all heard the buzzword ‘digital first’. In my view, it should really be ‘digital everything’! Until recently, we tended to assign digital transformation to some techies sitting somewhere in a basement and occasionally we would call them out and ask, “What are you guys working on?” I believe that digitalisation should be driven by the CEO and COO and it should be part of the business strategy. It is not a digital strategy it is THE strategy.
The pandemic has certainly caught most businesses off-guard and escalated their digital transformation agendas. The banking sector, including Bank One, has not been spared. We achieved digital targets within three weeks that were not even planned for another six months to two years. It just forced us to do it then and there. Previously people used to tell me that it was not possible. When your back is against the wall, you realise what is possible. I think that the past few months have been an eye opener and success for us. Our philosophy now, at Bank One, is not digital first but digital everywhere.
FinTechs arrived on the scene ten years ago and they were seen as a threat to banks. But, over time, it is being considered more as a complementary relationship. I am from Africa, so allow me to use an African proverb: “If you want to go fast, go alone, but if you want to go far, go together”. I believe this proverb also applies to the symbiotic relationship between banks and FinTechs. You might not have all the answers, but if somebody else does, why don’t you leverage on that emerging technology and harness it, rather than trying to develop it on your own?
JAMES: The pandemic has helped us identify exactly what needs to be done, so if ever we go into a second lockdown, we have the means, the resources and the technology needed to ensure business continuity and to serve our customers better. Now it is the time to really implement it!
CARL: Mauritius unfortunately needed a little crisis to wake up. People will now start becoming more and more digital in their habits. I believe banks are not quite there when it comes to digital; that is why we need the FinTechs. If you look at the FinTechs, not one player is able to do everything that the banks do. One operator may be really good at payments, another may be good at cross-border transfers while someone else may be good at mobile loans. Banks have finally realised that these FinTechs are not competing with them, so if they can do something better than me then let me call them into my ecosystem, rather than making a large investment for three years to get to where they already are.
Watch this space. Bank One is going to come up with something that will change the game. We believe that because of the crisis that Mauritius is going through right now there is a need for such a solution in the market. This product would probably not have taken off so well had we launched it last year.