Why Stanchart has shifted gears in African, Middle East markets

The Group, as a whole – in 2022 - therefore exited seven markets including two Middle East markets – Jordan and Lebanon – and Zimbabwe.

On July 14, 2023, it subsequently entered into sale agreements with Nigerian bank - Access Bank Plc - to buy its shareholding in its subsidiaries in Angola, Cameroon, Gambia, and Sierra Leone, and its consumer, private, and business banking business in Tanzania.

And last Wednesday, Access Bank Plc, which has a presence in Uganda through an 80 percent buyout in Finance Trust Bank, announced the completion of the acquisition of two - of four businesses - in Angola and Sierra Leone.

The announcement came on the same day, Standard Chartered announced a further scaling back by selling its wealth and retail businesses in Botswana, Uganda, and Zambia. 

In Uganda, Standard Chartered announced it had started a process in which it will complete selling its retail and wealth businesses in 18 or 24 months.

In simple terms, retail and wealth management are two parts of the bank's businesses that largely serve individual customers.

Retail banking involves personal savings and checking accounts, loans, debit and credit cards, and other financial services that everyday people use to manage their finances, while wealth management focuses on helping clients grow and invest their money by offering personalised services such as investment advice, managing stocks or bonds, estate planning, among others. 

So, by selling off these businesses, Standard Chartered will end its focus on individuals and shift to bigger clients such as international companies and corporate organisations, which the Group, in its new strategy believes, will deliver more profits in the long run.

Already, Standard Chartered has received clearance from Bank of Uganda in its search for a buyer, which Sanjay Rughani, the local bank’s chief executive officer, says will include negotiations to see how current staff are absorbed by the new buyer and continuity of long-term contractual obligations.

Thus, the sale could have arrived late in Uganda, but it has been a story in the works for now nine years.

On November 3, 2015, Standard Chartered Group announced a strategy that would see it  “exit several smaller retail presence countries [and overhaul] commercial banking with focus on cost efficiencies, risk-weighted assets optimisation, and greater risk controls”. 

Thus, the sale in Uganda announced last week was only feeding into a decision that has been reviewed over a long period of time.

In Uganda, Standard Chartered remains a solid business. It is listed among Uganda’s five Domestic Systematically Important Banks and its balance sheet has been returning profits - closing 2023 with a profit posting of Shs80b, which was double the Shs40b returned in the year ended December 2022.  

Beyond this, the bank has tremendously reduced its credit impairments, which remain a pain point for many banks, given that they erode capital in anticipated loss and credit provisioning.

Standard Chartered has achieved this feat from just three branches - all in affluent Kampala - supplemented by a fair supply of 32 automated teller machines, 10 cash deposit machines, and 20,000 agent banking locations across the country. 

Therefore, from the reading of the environment,  Standard Chartered could have been rehearsing how to cope in the new direction given that it has been able to achieve so much under a low supply of branch network, compared to other banks that have a large presence across the country.

However, whereas the figures and details above look impressive, the Group now wants to write a different story, with Rughani saying that in its current set up it is better for a local player to run the wealth and retail businesses, because, whereas, “they are pretty big businesses”, they don’t provide that opportunity “to grow to a scale that we want within our global strategy”.

At Group level, Standard Chartered has pressed on with an ambitious target that seeks to reward shareholders with a return on tangible equity of 12 percent from the current 10 percent.

In his update to shareholders, Bill Winters, the Standard Chartered Group chief executive officer, told investors in February that tangible equity will grow “with improving operational leverage and maintaining a responsible approach to risk  ...  in 2026 and thereafter.”

The shift, therefore, feeds into a broader strategy in which the Group will focus on areas where it sees more growth potential and profitability.

In recent years, the Group has been restructuring its operations to concentrate on wealth management and serving international corporations.

These are seen as more lucrative, especially in the Group's core markets in Asia. Thus, by divesting from certain African operations, it seeks to free up resources and reinvest in its wealth management division. 

Investor briefings show that the Group will - in the long term - solely focus on the affluent segment, from which, today it has a 68 percent holding in customer deposits, net income interest, wealth solutions, and non-interest income. While its wealth and retail businesses, from which it seeks to exit,  has a holding of just 32 percent

Therefore, by freeing the 32 percent, Standard Chartered says, it will invest the returns in cross-border services for global corporate and financial institutions to prioritise clients with a net worth of over $10m, fund managers with assets under management of over $1m, and individuals with a net worth of between $100,000 and $25,000.

The Group indicates that “Affluent is a large and high-returning business,” contributing one-third of its profits, making up a quarter of its income, and yielding more than 2.5 times the income return on the Group's risk-weighted assets.

The Group’s success story in Asia, which puts it as the fourth largest wealth manager on the continent, could be the driver behind the new direction with a plan to invest $1.5b over the next five years “in growing our international banking proposition” in mostly Hong Kong, Singapore, UAE, China, and India and a target of earning $200b of new money over the next five years. 

What happens to the retail and wealth business clients?

The sale of the retail business segment will only alter a client’s relationship with Standard Chartered. 

Thus, Lydia Nakamya, the Standard Chartered Uganda general manager of affluent banking and wealth management, says existing client and partner agreements will continue to stand even after the business has been sold off. 

In the wealth segment, the bank notes that existing contracts in government debt holdings will still have their underlying issuers and will continue through their lives, and interest will continue to be paid normally until they mature”. 

The same applies to insurance plans and unit trust holdings such as SC Shillingi, which is managed by Sanlam Investments. 

“Our contract with Sanlam hasn’t changed. Same with offshore mutual funds. So all these will continue working normally,” Nakamya says.

Standard Chartered’s departure from, particularly the retail segment, coincides with a peak and saturated growth that has been made complicated by an increase in banking alternatives. 

Dr Fred Muhumuza, an economist, says banks are finding it difficult to maintain the retail segment due to increased runaway operational expenses on real estate, administration, technology, and management. 

Yet, he says, customers have been exposed to a variety of alternatives such as mobile, online, and agent banking.  

“Setting up and managing the infrastructure at a national level is costly,” he says. 

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