African banks need more lending nerve, says author

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Page 93

Banks in Africa have money, but "they don't lend very much. The biggest challenge is getting banks to lend more. It's not a question of liquidity. They have the money. . . . There's a lack of banking nerve," according to Patrick Honohan, who, with his World Bank colleague Thorsten Beck, is the author of a new World Bank book on African finance.

At a panel discussion at the World Bank on March 13 to discuss Making Finance Work for Africa, Honohan-Senior Advisor, Finance and Private Sector Development-said that there has been some progress in the past decade in deepening financial systems in sub-Saharan African countries. Private credit, bank deposits, and liquid liabilities have all turned up since 1996. And there has been some pickup in stock markets, too. Still, the financial systems in most sub-Saharan African countries are dominated by banks, and African banking systems are small, absolutely and relatively. They are also reluctant to lend to the private sector, and what little private lending they do is expensive.

Banking spreads are high, far higher than in most of the rest of the world, Honohan said in his presentation, perhaps because of what banks perceive as the riskiness of lending.

Those banks lend only about 30 percent of their resources to the private sector. In most other regions, banks lend 60 percent or more...