Is UK lender jumping from frying pan into fire with Africa exit?

European banks are doing badly on account of banking in a region whose growth is anaemic. This would not have been a problem if Europe had vibrant trade links with other regions of the world enjoying robust growth.

Unfortunately, financing intra-European trade is the main driver of European banking. So they are all caught up in this self-reinforcing vortex that is spiralling downwards. More so, banking laws in many European countries prohibit lending against foreign assets, for instance, a UK bank cannot lend to a borrower in Kenya against a Kenya-registered security.

Therefore, many European banks are sitting on huge mountains of cash that no one is willing to borrow, even at 1 per cent per annum. All attempts at stimulating the economies through quantitative easing (simply, printing more money) aren’t working. Some economies are now desperate; they are charging customers for depositing cash in banks!

The saving grace for the US is the vibrant export orientation, robust consumption fuelled by cheap credit, cheap gas, ‘wealth effect’ from rising stock prices, and the sheer strategic agility of US corporations.

One idea for Barclays and other European banks: release those huge pools of liquidity to borrowers outside Europe who are hungry for credit — India, Africa and Middle East. After all, much of this credit to these cash-hungry foreign borrowers will be spent buying European goods, like energy equipment and technology, medical supplies, and infrastructure equipment and services, giving a lifeline to European exporters.

However, I think in the exit of foreign banks in Africa, there are lessons to be learnt and local banks must take heed. In a serious state of recession, local banks will not stand. The quality of their balance sheets is weak. I also have my reservations about investing in the African banking sector — the wins will be short term and the day a serious disrupter arrives, the sector may crumble.