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Egypt, Angola, Nigeria, South Africa, and Morocco, account for 68% of the continent’s total banking revenue pool, according to a recently released McKinsey report. This places Africa at number two as a banking market in terms of growth and profitability.

Low banking penetration and income levels, as well as cash-based economies, are key obstacles to the development of Africa’s banking sector. However, the McKinsey report says that the number of banked Africans grew from 170 million in 2012 to nearly 300 million last year.

“We expect the banked population in Africa to swell by more than 150 million people, from nearly 300 million in 2017 to 450 million by 2022, and much of this growth will be at levels of income lower than $5,000 per year,” the report says.

The report also qualifies Africa as “nearly twice as profitable as the global average”.

Mature markets

According to the report, Egypt and South Africa are the most mature markets in the continent. These markets have higher branch penetration—17 branches per 100,000 adults, versus the African average of 5. They also have higher credit bureau penetration of 22% of adults, double the African average.

Retail banking tends to be a higher share of the revenue pool in these markets, and more sophisticated financial services such as asset management and mortgages are also more prevalent. The reason for this is that the share of adults earning over $5,000 per year is higher at 51% on average, versus 15% for Africa as a whole.

Related: Africa to experience fintech boom worth billions by 2020

Despite this, McKinsey’s research indicated that nearly 70% of retail banking revenue growth through 2025 will come from customers earning between $6,000 and $36,000.

The report also says that around 60% of total retail revenue growth in the next five years will come from Egypt, Morocco, South Africa, Ghana, and Nigeria.

Digital banking

Four in ten African banking customers prefer digital channels for transactions, and four major countries’ customers prefer digital to branch. For example, in Nigeria, 59% of customers prefer digital, compared to 15% that favor branches.

Digital channels are also preferred to branches for transactions in South Africa (56% of customer versus 27%), Angola (45% versus 40%), and Kenya (43% versus 33%).

The report also highlights that heavy staff costs and labor-intensive, paper-dominated processes hold back productivity, adding that credit risk still remains a concern, with non-performing loans accounting for more than 5% of African banks’ portfolios.

Read more: Discovery close to bank launch in South Africa, tests new capabilities

by Henry Vilar
Henry is Junior Reporter at IBS Intelligence, follow him on Twitter or contact him at: henryv@ibsintelligence.com