James Benoit: “The core growth opportunities are in Africa”

AfrAsia Bank just announced profits of Rs 303 million for the financial year ending June 2013. James Benoit, CEO of the bank, elaborates, in the interview below, on the bank’s success strategy, on the African segment and on expansion plans.

BUSINESSMAG.AfrAsia Bank’s profits have grown by 68% this year to reach Rs 303 million. Where doesthis growth stem from?

We have been spending a lot on branding and advertising, and have sponsored some media events locally. Also, we went on the global scene and carried out road shows in Singapore, Shanghai, Hong Kong, Beijing, London and Luxembourg.

Our incoming deposits, both from our corporate and private clients in Mauritius and our global business clients from over 80 countries, have really provided us with a huge growth in deposits. Our lending book has been growing as a result of that.

AfrAsia has been active with investing in some local bonds issued by corporates as well. We also earned a fair amount of origination fees from the loan book. Our Treasury segment registered a substantial increase as well. On overall, it has been a good financial year for our domestic and global business clients and we are very much happy with the results.

BUSINESSMAG.This performance is also the result of a ‘strong fee income’ which is one of the concerns of Central Bank’s governor, Rundheersing Bheenick. He finds that banking fees are overpriced. What is your stand on this?

I am not going to comment on the industry at large. AfrAsia is a new bank and, clearly, if our fees were above market, people would not come to us given the variety of other choices; at the end of the day, there are a lot of banks competing in the domestic market.

I guess the main point is whether it is the Mauritius Commercial Bank’s results or ours, increasingly, around 50% of banks’ profitability is being generated by Segment B business (banking activities that give rise to foreign source income). These clients are not complaining about the fees. Instead, they are enjoying the great service and all the other benefits that Mauritius offers as a financial centre.

There may be certain segments of companies or individuals where we need to review the level of fees. However, the bottom line is: Mauritian banks are increasingly very international and I don’t think there’s a case to say we are too expensive on that side.

The demand for Segment B business is very elevated and has been growing strongly. Mauritius is very much becoming a regional financial centre. Many companies are choosing this route for expansion into Africa, India and the neighbouring regions.

BUSINESSMAG.How is the Indian segment of the business faring?

We have been doing just fine. We cannot comment on all the other competitors but we haven’t experienced any credit losses from India. Our custody business and our global business for India have been steady. So, for us, India has been a very good place business wise.

BUSINESSMAG.AfrAsia’s activities in Zimbabwe were negatively impacted this year, largely due to non-performing loans. What has been/is being done to address this?

We’ve put in place a lot of governance structures on credit to be processed during the year and that allowed us to identify some of the problems. We have taken the decision to recognise those loans and deal with the consequences. We’ve already done a lot of work at board level to identify issues.

Secondly, we have been putting in place a new corporate management structure, brought in an experienced risks officer and are continuing to put new executives there. We’ve done an upgrade on the overall governance of the bank there.

Thirdly, to help consolidate the bank in Zimbabwe, we had to increase the existing capital and our shareholders decided that they would not be able to continue to borrow. So we ended up buying their stakes. As a result of this, we will now be rebranding the bank there as AfrAsia Bank Zimbabwe Ltd. There’s a comprehensive turnaround plan in place.

BUSINESSMAG.Does this mishap come to highlight that investing in Africa could be far more risky than anticipated by foreign investors?

Risky might not be the right word. Instead, Africa’s been high in volatility. This is demonstrated by the recent tragic events in Kenya, for example. I think we have to appreciate that the core growth opportunities are there but one has to make sure that he is managing the risks in his specific business. I will add that none of the risks encountered in Zimbabwe were unidentified, they were just larger in scale. It is something we worked really hard at but it has taught us that, as a Mauritian company, it is going to be important to have lots of extra skills to be present in Africa.

BUSINESSMAG.Several banks’ profits in Mauritius, including AfrAsia’s, are being generated by the global business segment. What kind of message is this sending out to the business community?

I think it sends out a great message because the reality is Mauritius is only 1.2 million people. With Mauritius serving as an International Financial Centre (IFC), there is a population of 2 billion or 3 billion people around us.

The increase in global business activities shows that Mauritius is increasingly becoming that regional IFC that we all keep saying we are trying to be. So, I think it’s not a bad thing at all; it just means the market around us is much bigger than our people. As time goes on, we can expect that our sources of revenue stemming from the region will expand. To sum up, it means that banks are well capitalised, very liquid and ready to do a lot of business here and internationally.

BUSINESSMAG.How does the bank face up the local and regional competition?

Pretty successfully so far. We’ve been fortunate to win a few awards, such as the Euromoney Award for Private Banking. We also recently won the Best Bank in Southern Africatitle conferred by The Banker Magazine. We’ll be earning another award later this month in Europe for another achievement. I’m not just speaking about us. In fact, when I look at some publications now, there are a number of Mauritian banks recognised in the Top 200 across Africa.

I would add that it is the collective effort of many of us (banks) that is really starting to position Mauritius as the banking hub of the African continent. I think our banking industry is being perceived as a substantial provider of capital and access to finance in Africa.

BUSINESSMAG.Could you elaborate on the bank’s long-term strategy?

Our strategy is to continue developing our presence here. We are waiting for approval of a new branch and for moving a lot of our support functions to Ebène because we are continuing to expand. We are nearly 140 people now. Our head office will however remain in Port Louis. We will also continue to consolidate our investment into AXYS Capital Management, which is our fund Management Company, and AfrAsia Corporate Finance as well, which will be completing our acquisition process until we are a wholly-owned subsidiary.

We are looking at some selective investments into other countries in Africa as well, which we will announce when we can. We are also in the process of applying for a representative office in London. So, basically, we want to have a good footprint in key African countries, obviously with Mauritius at the centre. We just want to make sure we are the leading, original preferred investment bank in Africa from Mauritius.

BUSINESSMAG.Are there any major projects in the pipeline?

The Ebène branch will be a big project for us, because it will be regrouping a lot of departments, such as marketing, finance and asset recovery. We will be hiring more people and will be expanding by another 20% this year. We are really trying to become more visible. We will continue to advertise our brand and invest in people and locations.

We hope to be coming up with a lot of new investment products. We are also doing a lot more of sophisticated treasury products which are being used by a lot of corporates. These two will continue to be key priorities. We also have a couple of special products for our private clients coming up, centred on credit cards.

BUSINESSMAG.When can we look forward to the listing of AfrAsia Bank on the Stock Exchange of Mauritius?

This is under consideration awaiting a further corporate holding company restructuring and is not expected for at least 12 months.