MEETING of MINDS in October 2019, Over 35 Bank Ceos Operati Onal Eﬃ Ciency, Risk and Corpo- and Senior Leaders, Mainly from African Rate Sustainability

MEETING OF MINDS In October 2019, over 35 bank CEOs Operati onal Effi ciency, Risk and Corpo- and senior leaders, mainly from African rate Sustainability. The subsequent countries, convened in Mauriti us for the prioriti sati on and discussion of these chal- annual Africa Forward Together (AFT) lenges were characterised by a wide degree conference, a three-day networking, of consensus amongst delegates, and sharing and business event hosted by helped provide a clearer bearing of areas MCB Group, East Africa’s largest bank- where African banking is facing diffi culty. ing group1. Over a series of fast-paced workshops, panels and collaborati ve The insights from this survey should comfort discussions, the parti cipants discussed individual insti tuti ons about the common and agreed on a list of the main challenges nature of key challenges facing the region’s faced by various African insti tuti ons. players, with the fi ndings informing the prioriti zati on of enabling strategies for This report is a resti tuti on of the the future, and promoti ng awareness fi ndings derived from one parti cular that some avenues of collaborati on and workshop held during the AFT confer- partnership could help solve some of ence, themed ‘Meeti ng of Minds’ - that these challenges. Whilst the insights may leveraged the insight of C-suite and also resonate with other players beyond senior banking delegates to identi fy the Africa, the coherent trend of steady biggest challenges they are currently progress across the conti nent provides an facing in their respecti ve insti tuti ons. opportunity for the region’s banks and

EXECUTIVE SUMMARY EXECUTIVE Five specifi c themes were emphasised, fi nancial services stakeholders to engage in all tackling areas that go beyond tradi- harmonised and collaborati ve development. ti onal fi nancial metrics: Experti se, People,

1 The Banker 2019, in terms of Tier 1 capital

2 A “Bank of Banks” with the aim of driving Africa Forward Together

This component of the Group’s internati onal expansion strategy has worked towards establishing MCB as a regional hub in handling trade fi nance, payments and cards operati ons outsourcing Pierre Guy NOEL services, alongside off ering business soluti ons to fi nancial service providers in

EDITORIAL Chief Executi ve Africa, Asia and the Middle East. Of note, MCB Group the Group partnered with and assisted some 91 fi nancial insti tuti ons worldwide, Partnership and collaborati on - the including over 60 in Africa and spanning key to MCB Group’s appreciable 24 countries in its last fi nancial year. We regional impact in a relati vely short enabled clients to gain access to state-of- ti m e the-art services off ered by various MCB Group enti ti es, thus helping them to un- Established in 1838, MCB’s expan- derpin capacity building and business sion outside of Mauriti us is a relati vely growth initi ati ves, while accessing indus- recent development, starti ng in 1991 to try best practi ces. reach 11 markets in which it is present as at 2019. Today, the Group is a well-established The Africa Forward Together (AFT) con- regional player in fi nancial services ference is an extension of this strategy, and has positi oned itself as a strong being an annual event off ering the region’s contender in key segments. banking leaders a privileged platf orm to network with industry leaders as well as A key success factor for the organisa- share experiences and views on trends ti on’s strong growth and expansion, and business developments shaping the 1 alongside its solid credenti als and confi nancial services sector on the conti - 2 ti nuous eff orts in innovati on , has been a nent. This year marked the 10th editi on of strategic focus on partnering and collab- AFT, having cumulated over the years the orati ng with other fi nancial insti tuti ons parti cipati on of over 360 delegates from in the region and beyond. In additi on 115+ fi nancial insti tuti ons across more to a well-developed network of some than 30 countries. 1,150 correspondent banks worldwide3, including around 200 in Africa, MCB has acti vely pursued its “Bank of Banks” strategy.

1As at November 2019, MCB Ltd’s deposit rati ng was Baa2 by Moody’s Investors Service (“Moody’s”); the Bank has the best long-term deposit rati ng amongst commercial banks rated by the above agency in Africa 2MCB invests heavily in technology and innovati on to make our soluti ons simpler, faster and more convenient, making the Group an att racti ve partner and soluti ons provider 3As at June 2019 3 Leveraging a ‘Meeti ng of Minds’ to challenges across the fi ve themes were confi rm and calibrate where future identi fi ed, a shortlist of which was rated, strategies and prioriti es should lie ranked and discussed. Fellow parti cipants therefore gained a collegial insight on the th During the 10 editi on of AFT, delegates main challenges regional fi nancial insti tu- took part in a workshop aiming to lever- ti ons are currently struggling with, and the age this unique Meeti ng of Minds, a gath- acti onable prioriti es for AFT’s community. ering of over 1000 years of cumulati ve experience in fi nancial services across the The top fi ve challenges are highlight- region, to identi fy and discuss the big- ed below, with the full list provided

EDITORIAL gest challenges facing African banks and subsequently in this document: those of other countries. The discussion 1. Lack of technical experti se amidst the revolved around fi ve specifi c themes, all increased cybersecurity risk; tackling areas beyond core fi nancial metrics: 2. KYC issues hampering fi nancial inclusion; 3. Talent management, retenti on and • Experti se - Technical know-how in development; the context of increasingly specialised 4. Gaps in customer relati onship disciplines (e.g. IFRS9); management; and • People - Talent acquisiti on and devel- 5. IT, Digitalisati on and Transformati on opment, planning for skill transiti ons, Programme Experti se. interplay with technology; • Operati onal Effi ciency - Leveraging Looking at the results of the survey, digitalisati on or process opti misati on the parti cipati ng insti tuti ons indicat- eff orts with a view to positi vely impact ed a strong awareness of technological on cost, ti me and customer-centricity; innovati ons impacti ng the banking • Risk - Focus on operati onal and and fi nancial sector, with most having regulatory risk; and • Corporate Sustainability - Obstacles embarked on digitalisati on initi ati ves to the inclusion of wider stakeholders, of varying degrees, oriented around and challenges in aligning strategy, risk the need to streamline processes and management, and culture. enhance customer-centricity. Several insti tuti ons acknowledged signifi cant What insights emerged? investments in technology, but reported some diffi culty in clearly translati ng these Considering the relati ve heterogeneity of eff orts into transformati ve results, in African markets in terms of disti nct char- additi on to establishing and measuring acteristi cs and level of maturity in con- a positi ve impact on their bott om line. sumer behaviour, there was a remarkable Additi onally, there is a lack of appropri- alignment on the challenges facing the ate risk assessment and framework that region’s fi nancial insti tuti ons. Thirty-nine caters for the exigencies arising from the

4 EDITORIAL d eg ubn utmr emns with segments mes unrelat- customer urban someti e.g. ed, and disti nct that are segments developing customer conti for of nent soluti ons wider challenge the the presents across and ket heterogeneity mar- region’s the the within from both arising note, another On in emerged many discussions. challenge fi This nancial furthering inclusion. in banks regional segments remaina key obstacle for unbanked of on-boarding facilitatethe to frameworks compliance other and (KYC) Know-Your-Customeradapted of lack the challenge, major a as targeted cifically spe- authoriti not and were banks es tral Whilst the burden of regulati on from cen- and fast-evolving emerging technological trends. senior of with familiarity management of level low the shared also change Parti cipants management. and project for transformati onal structures organisati onal enabling Scienti Data and as sts positi such for ons ti required programmes, skills covering on transforma- related DigitalisatiIT, and on in most know-how experti and technical se of of restshortage signifi cant the the insti is across tuti ons, parallel, In these fields. in levels senior at pertifamiliarity and se ex- technical of lack the by compounded signifimost challenge, the cant as lighted high- and therefore were att frauds acks cyber cybersecurityother of rise The soluti digital ons. new adopti of and on use banking andfi today.nancial services African facing challenges common the of potentithe has manyregion address to al the within collaborati partnership and on that awareness promote and future, the for strategies instiof enabling tuti fiprioriti ons’ nancial zati inform on help will report this from insights the that hope I lines ofcredit. tomerscentral and banks, to providers of cus- own our from ranging stakeholders is increasingly upheld as the minimum standard vis-a-vis a impact with positi ve bank wider trusted a being later, because than rather sooner place take to have will adjustment This mindset. ment cul- manage- corporate risk measured more a of and ture adjustment deep a push, strategic considerable a requires to value sustainability corporate long-term with stakeholders challenge. of a alignment as The highlighted also was of principles sustainabilityinto corporate DNA embedding Elsewhere, and channels. support traditi onal unbanked requiring rural segments vs literacy digital high MCB Group Chief Executi ve Pierre GuyNOEL 5 Risk

Cybersecurity risk and lack of related expertise 7.1 Reputational risk, notably arising from social media 6.2 Cost of regulatory Operational Expertise compliance 6.2 eﬃciency

IT, digitalisation and Gaps in customer transformation relationship management 6.6 programme expertise 6.5 Regulation slowing down Technology as a operational eﬃciency 5.9 business enabler 6.1 System and Project management processes to support expertise 5.7 operational eﬃciency 5.8 Key challenges keeping African banking leaders up at night

Shortlisted and rated from 1 to 9, with 9 being the most important challenge

Corporate People Sustainability Inadequate institutional frameworks are hampering progress on Talent management 7 sustainability 7.1 Integrity (ethics) 6.4 Aligning strategy, risk management and culture to principles of Change management corporate sustainability 6.3 6.1 Insuﬃcient support to drive corporate sustainability 6

6 Gaps in customer relationship management 6.6

Regulations slowing down operational eﬃciency OPERATIONAL EFFICIENCY 5.9

System and processes to support Operational Efficiency 5.8 While IT, new Digitalisation technologies and Transformation are progressively Programme disrupti Expertise ng traditi onal business models and opening up new opportuniti es, such developments also6.5 come with att endant risks, parti Technologycularly when as a businessmaking enabler(leadership) allowance for the rising prominence of new channels and media EXPERTISE used to conduct business. Moreover, risk in its various forms6.1 remain the defi ning challenge RISK to banksProject and management fi nancial insti expertise tuti ons, with an especially potent weight for the African region. The experience of recent and general derisking from5.7 global players has led to a parti cu- larly cautiTalent managementous approach to the risk assessment of the African region and highlighted the importance of domesti c market knowledge and insight. 7 Integrity (Ethics) PEOPLE 6.3

MAINChange CHALLENGES management IDENTIFIED AND DISCUSSED 6.1

Cybersecurity risk and lack of related expertise 7.1

RISK Reputational risk, notably arising from social media 6.2

Cost of regulatory compliance 6.2

Inadequate institutional frameworks are hampering progress on sustainability 1 being rated least important 7.1 CORPORATE Aligning strategy, risk management9 being and culture rated most important SUSTAINABILITY to principles of Corporate Sustainability 6.3

Insufficient support to drive corporate sustainability Cybersecurity risk and lack of related Reputati6 onal risk, notably arising experti se from social media • Sub-opti mal controls amidst increasing • Diffi culty in quanti fying impact adopti on of new channels and customer interfaces Cost of regulatory compliance • Increasing recourse to soluti on providers • Both local and internati onal standards for new technological set-ups, i.e. cloud increasingly expensive to abide by • Experti se in managing cybersecurity • The emergence of new standards that diffi cult to fi nd are highly complex, i.e. IFRS9

OTHER CHALLENGES Changing market dynamics make it diﬃ cult to keep up with the development Adequate governance mechanisms are an of new products within shortening ti me- important considerati on proving challeng- to-market exigencies, whilst ensuring a ing to implement proper risk framework

7 With the emergence of new competi ti ve pressures arising from new players such as Fintechs and Telcos, fi nancial insti tuti ons fi nd themselves compelled to achieve signifi cant improvements in operati onal effi ciency, be it in terms of ti me, cost or simplicity of process. These new business imperati ves are occurring against a backdrop of unrelenti ng regulatory rigour and increasing stringency in compliance and risk frameworks.

MAIN CHALLENGES IDENTIFIED AND DISCUSSED

Gaps in customer relationship management 6.6

Regulations slowing down operational eﬃciency OPERATIONAL EFFICIENCY 5.9

System and processes to support Operational Eﬃciency 5.8

IT, Digitalisation and Transformation Programme Expertise 6.5 1 being rated least important Technology as a business enabler(leadership)9 being rated most important EXPERTISE 6.1

Project management expertise 5.7 GapsTalent in customermanagement relati onship man- System and processes to support OPERATIONAL EFFICIENCY OPERATIONAL agement Operati onal Effi ciency7 Integrity (Ethics) PEOPLE • Connecti vity is a challenge • Customer awareness/educati on, and 6.3 adopti on of new effi cient channels and • Issues with mapping in the system (high off eringsChange management rework rates and change requests, etc…) 6.1 • Diffi culty in implementi ng end-to-end pro- • Challenge to secure strategic and cessesCybersecurity between risk the and lackcustomers of related expertiseand the resource bandwidth to embark on large- 7.1 Bank scale projects (Run the bank vs. Change RISK Reputational risk, notably arising from social media the bank) Regulati ons slowing down operati on- 6.2 al effi Cost ciency of regulatory compliance 6.2 • Internati onal Operati ons (USD – FATCA) Inadequate institutional frameworks are hampering progress on sustainability • Restricti ons on monetary policies 7.1 CORPORATE Aligning strategy, risk management and culture SUSTAINABILITY to principles of Corporate Sustainability 6.3

Insuﬃcient support to drive corporate sustainability 6

8 OPERATIONAL EFFICIENCY ping up limitati crop- frequent ons with progress, the hindering are approach non-holisti c digitalisati on Piecemeal efficiency initi ati ve operati disrupti ves onal or transformati ve for challenge a senior management are buy-in and frameworksGovernance of processes adopti effi on cient the and Straight-through-processing hindering are pro- tocols clearance redundant and Multi ple KYC frameworks cumbersome andrigidCompliance and to Client onboarding remains apainpoint, due ated space, notably payments disintermedi- the into moving are who nies compa- Telecommunicati on from Threat OTHER CHALLENGES ff ot and efforts from a a challenge. as effi operati onal ciency” down “Regulatiof importance slowing on the rati ng when score maximum the assigned respondents our of 25% nearly fi that survey nds Our ? 9 Gaps in customer relationship management As today’s economies become ever more knowledge-based, technology-driven6.6 and glo- Regulations slowing down operational efficiency OPERATIONAL balised, there is a growing recogniti on that companies have to prepare the next generati on EFFICIENCY with future-ready skills and the capacity for conti nued lifelong5.9 learning, while, at the same ti me,System up-skilling and processes and re-skilling to support Operational the current Efficiency workforce. Despite imminent disrupti on to human resource management arising from new phenomena5.8 such as automati on and Arti fi IT,cial Digitalisation Intelligence, and peopleTransformation remain Programme at the core Expertise of banking and fi nancial services, which rely on intrinsically human values such as trust and integrity. 6.5 PEOPLE Technology as a business enabler(leadership) EXPERTISE 6.1 MAINProject CHALLENGES management expertise IDENTIFIED AND DISCUSSED 5.7 Talent management 7 Integrity (Ethics) PEOPLE 6.3

Change management 6.1

Cybersecurity risk and lack of related expertise 1 being rated least important 7.1 9 being rated most important RISK Reputational risk, notably arising from social media 6.2

Cost of regulatory compliance Talent Management • Shortage of6.2 skills in IT and Digitalisati on • Increasing pace of development in tech- • HighlyInadequate competi institutional ti ve market frameworks and frequent are hampering progress on sustainability nology a challenge in terms of people poaching 7.1 CORPORATE Aligning strategy, risk management and culture SUSTAINABILITY • Increasing staﬀ turnover rate to principles of Corporate Sustainability Integrity(Ethics) • Increasing expectati ons for more con- 6.3 sidered career development paths and • Increasing scope for internal fraud, Insuﬃcient support to drive corporate sustainability frameworks enabled6 by technology, require a bolstered training and inducti on Change Management programme • Monitoring frameworks need to be • Workforce planning in anti cipati on to strengthened the changing nature of jobs

OTHER CHALLENGES Leadership skills are being tested, with leaders called upon to remain informed and educated on new trends in technology or workplace practi ces being brought about by shift ing generati onal behaviour from both customers and employees.

10 Gaps in customer relationship management 6.6

Regulations slowing down operational eﬃciency OPERATIONAL EFFICIENCY 5.9

System and processes to support Operational Eﬃciency 5.8

IT, Digitalisation and Transformation Programme Expertise 6.5 Technology as a business enabler(leadership) EXPERTISE 6.1

Project management expertise 5.7 There Talentis now management an accepted understanding that governments are no longer the only respon- sible agent in building sustainable societi es. Banks and ﬁ nancial insti7 tuti ons hold a unique vantageIntegrity point (Ethics) on the economies in which they operate, and are positi oned to contrib- PEOPLE ute acti vely to a new paradigm that aims to embed long-term6.3 value for all stakeholders.

AdditiChange onally, management consumers now increasingly vote with their wallets on areas such as social and environmental issues. Going forward, companies will have6.1 to work towards embedding

sustainabilityCybersecurity principles risk and lack as ofa relatedkey value expertise driver in the way they do business and this will require a multi -level shift . 7.1

RISK Reputational risk, notably arising from social media 6.2 MAIN CHALLENGES IDENTIFIED AND DISCUSSED Cost of regulatory compliance 6.2

Inadequate institutional frameworks are hampering progress on sustainability 7.1 CORPORATE Aligning strategy, risk management and culture SUSTAINABILITY to principles of Corporate Sustainability 6.3

Insuﬃcient support to drive corporate sustainability 6

1 being rated least important 9 being rated most important

Aligning strategy, risk management Inadequate insti tuti onal frameworks and culture to principles of corporate are hampering progress on sustain-

CORPORATE SUSTAINABILITY CORPORATE sustainability ability • Traditi onal and unilateral focus on • E.g. Ill-adapted KYC frameworks for the fi nancial metrics challenging to widen region’s characteristi cs are proving to • Diffi culty in securing buy-in from relevant be an obstacle to fi nancial inclusion stakeholders

Insuffi cient support to drive corporate sustainability • Structure and staffi ng eff orts tend to be underesti mated

11 OTHER CHALLENGES Slow pace of regulatory reform, and lack of dialogue Immature market for Green ﬁ nancing, with ? products and services not adapted yet

Our survey ﬁ nds that nearly 25% of our respondents assigned the maximum score when rati ng the importance of “KYC issues hampering ﬁ nancial inclusion” as a challenge. CORPORATE SUSTAINABILITY CORPORATE

12 Amidst an increasingly demanding operati ng and regulatory environment, fi - nancial insti tuti ons are requiring more technical experti se, specialised know- how and high-specifi cati on infrastructure in order to carry out their day-today acti viti es. These are both expensive and relati vely more diffi cult to access, considering the African context. Financial insti tuti ons therefore face signifi cant challenges in accessing these important enablers, and are adopti ng a variety of possible soluti ons, ranging from outsourcing (for example to consulti ng fi rms or through partnerships) to developingGaps in customer in-house relationship and customised management set-ups. 6.6

Regulations slowing down operational eﬃciency OPERATIONAL

EXPERTISE EFFICIENCY 5.9 MAIN CHALLENGES IDENTIFIED AND DISCUSSED System and processes to support Operational Eﬃciency 5.8

IT, Digitalisation and Transformation Programme Expertise 6.5 Technology as a business enabler(leadership) EXPERTISE 6.1

Project management expertise 5.7 Talent management 1 being rated least important 7 Integrity (Ethics) 9 being rated most important PEOPLE 6.3

Change management 6.1 ProjectCybersecurity Management risk and lack Experti of related seexpertise and strategy, instead of being the other way round 7.1 • Lack of structure within organisati ons to RISK • Management someti mes held hostage coordinateReputational projects risk, notably arising from social media through lack6.2 of experti se • Absence of Project Management Offi ce • Diffi culty in reviewing proposals and • Diffi Cost culty of regulatory in securing compliance buy-in & change auditi ng selecti on management challenges 6.2 • CostiInadequate ng and institutional overruns frameworks with regardsare hampering to progress on sustainability budget and ti meframes Technology as a business7.1 enabler and CORPORATE Aligning strategy, risk management and culture SUSTAINABILITY in leadership to principles of Corporate Sustainability IT, Digitalisati on and Transformati on • Leadership6.3 skills in technology are a Programme Experti se challenge Insufficient support to drive corporate sustainability • Awareness level of management • Diffi culty in adequately assessing IT re- 6 • Knowledge handling quirements • Decision-taking and challenging proposals • IT seems to be driving decision-making

13 OTHER CHALLENGES Due Diligence capabiliti es for the region remain a challenge

Compliance and regulatory experti se, in terms of skills, are diﬃ cult to source and develop

Process experti se, i.e. the establishment of

EXPERTISE adequate processes and linkages are a key challenge, oft en when integrati ng state-of- the-art soft ware or infrastructure

Microﬁ nance experti se

Automati on and arti culati ng a coherent workforce planning to anti cipate future disrupti ons

The implementati on and executi on of strategy, amidst increasing transformati on initi ati ves, is proving increasing challenging

14 MCB Group is an integrated fi nancial as a strong contender in retail and corpo- services provider off ering customised rate banking in these markets. It leverages a products and services to a wide range of network of Representati ve Offi ces located clients through its local and foreign sub- in Johannesburg, Nairobi, Paris and Dubai sidiaries and associates. Headquartered in to further its well-established positi on as Mauriti us and listed on the Stock Exchange a regional player in key segments such as of Mauriti us, the Group has cemented its Energy and Commoditi es fi nancing and positi on as the leading banking sector play- internati onal structured fi nance, and is in- er locally, through its main banking enti ty, creasingly established in capital markets. A MCB Ltd. Furthermore, the Group is rec- cornerstone of the Group’s regional expan- ognised as a prominent fi nancial services sion is its acti ve positi oning as a regional player in the region. It capitalises on its for- hub for meeti ng the outsourcing needs of eign banking subsidiaries in Madagascar, fi nancial service providers, especially those Seychelles and Maldives to positi on itself in Africa, via a ‘Bank of Banks’ strategy. ABOUT MCB GROUP

For any query about this report:

Jean-Michel Félix Dominique Aliphon Chief Executi ve Oﬃ cer Senior Relati onship Manager MCB Consulti ng Services Ltd Financial Insti tuti ons jeanmichel.felix@mcbconsulti ng.mu [email protected]