The International Monetary Fund (IMF) on Wednesday warned Nigeria and other African countries on rapid expansion of cross-border banking in Africa in recent years which it said offers opportunities and benefits for the economies involved but equally poses oversight challenges that, if unaddressed, may increase systemic risks.
The IMF welcomes the fact that 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 particularly cautions that efforts to strengthen oversight in some cases needed to be intensified.
Pan-African banks have a systemic presence in around 36 countries and defaare now more important than the continent’s long-established European and American banks.
In Nigeria, for instance, 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.
Zenith, GTBank, UBA, First Bank, Access are some of Nigerian banks which now operate offshore subsidiaries.
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In 2008, the Central Bank of Nigeria (CBN) raised a similar concern around the aggressive expansion by banks, particularly cross border, saying these involved additional risks, especially in regulation.
In the light of those realities in the banking industry and in line with its risk-based approach to supervision, the CBN subsequently issued guidelines on offshore expansion by banks which it mandated them to adopt.
But the IMF report is raising fresh concern that supervisory capacity is constrained and under-resourced in most of Africa, saying that even though progress is being made in several areas, urgent priority must be placed on strengthening oversight of some bank holding companies.
“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.
The end of apartheid in the mid-1990s opened the door for South African banks to extend their expertise abroad while Moroccan banks also saw opportunity to extend their networks south in the face of more limited opportunities at home.
Also for Kenya, 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.
In its board paper on Pan-Africa Cross Border Banking Exercise, the IMF is quite concerned that the rise of pan-African banks also opens new channels for transmission of macro-financial risks and other spillovers across home and host countries.
“As these groups develop in reach and complexity, significant supervision gaps, governance issues, and questions about cross-border resolution have emerged, the IMF noted in the report.”
