Pan-African Banks Expansion Could Boost Systemic Risks

Rapid growth of cross-border banks in Africa benefiting financial development

But bank supervision constrained, underresourced in most of Africa

Urgent priority to strengthen oversight of some bank holding companies

A recent report noted that pan-African banks have a systemic presence in around 36 countries and are now more important than the continent’s long-established European and American banks.

Pan-African banks are improving competition, especially in host countries with small markets, driving innovation, and bringing new opportunities for diversification for the home countries.

But the report highlighted that supervisory capacity is constrained and under-resourced in most of Africa. Progress is being made in several areas, but efforts to strengthen oversight in some cases need to be intensified.

“The emergence of pan-African banks is a welcome development given the need for financial deepening and inclusion in Africa. At the same time, the rapid cross-border expansion of these banks also raises new regulatory and supervisory challenges that, if left unaddressed, could pose systemic and spillover risks” said Mauro Mecagni, Assistant Director of the IMF’s African Department.

Drivers of the expansion

The rise of pan-African banks reflects a convergence of factors.

• The end of apartheid in the mid-1990s opened the door for South African banks to extend their expertise abroad.

• In Nigeria, the large increase in minimum capital requirements, following a banking crisis in the mid-2000s, pushed banks to consider expanding abroad to make use of their new capital bases.

• Moroccan banks also saw opportunity to extend their networks south in the face of more limited opportunities at home.

• A renewed impetus for regional integration, coupled with the success of mobile payments in Kenya was propitious to the expansion of Kenyan banks in east Africa.

More generally, increasing trade linkages between African countries induced banks to follow their clients abroad. The easing of civil conflicts, the significant improvements in macroeconomic performance, and the opportunities arising from large unbanked populations across the continent was fertile ground for the expansion

New business

The presence of pan-African banks offers opportunities and benefits for the economies involved. In particular, cross-border activity brings new business opportunities and diversification for the home countries, while host countries benefit from

• Increased...