Monday, November 28, 2022

Pan-African banks can fill role played by European peers- IMF

The International Monetary Fund (IMF) says pan-African banks can play a major role as trade enablers in the continent at a time when their international peers are handicapped by the global recession.

The Bretton Woods institution said in a survey for the Global Financial Stability Report that these banks are driving innovation, offering opportunities to enhance financial inclusion and in some cases contributing to lowering borrowing costs.

The IMF said reflecting a number of converging push and pull factors and aided by improved political and macroeconomic stability and robust economic growth, the number of operations of the seven largest groups has more than doubled since the mid-2000s.

“Specific factors contributing to this expansion include increasing trade linkages between African countries, which have induced banks to follow their clients, and the declining role of more traditional players such as European banks,” stated the Washington based body.

Although these major pan-African banks are based in the north and eastern parts of the continent, the SADC region has its own share of these forms of banking groupings. For example, in Botswana; ABC Holdings Limited, which trades as BancABC has made its mark across the region and some parts of east Africa.

The banking group, which is registered and previously had a primary listing on the HYPERLINK “” \o “Botswana Stock Exchange”Botswana Stock Exchange, and had a secondary listing on the HYPERLINK
“” \o “Zimbabwe Stock Exchange”Zimbabwe Stock Exchange has headquarters in Botswana and expanded to other markets that included HYPERLINK “” \o “Mozambique”Mozambique, HYPERLINK
“” \o “Tanzania”Tanzania, HYPERLINK “” \o “Zambia”Zambia, and HYPERLINK “” \o “Zimbabwe”Zimbabwe.
The other bank operating in Botswana and has a sizable presence in Africa is the Standard Bank group that originates from South Africa.

“The growth of pan-African banks offers a number of opportunities and benefits. Anecdotal evidence suggests that the expansion of these banks has improved competition and given rise to economies of scale, especially in host countries with small local markets,” added IMF.

According to the institution, African banks have also become lead arrangers for syndicated loans, filling the gap left by European banks. Equally, IMF noted that from a home country perspective, the geographical expansion of pan-African banks increases diversification and provides further growth and profit opportunities for banks.
However, it was observed that as these groups have developed in reach and complexity, significant supervision gaps, governance issues, and questions about cross-border resolution have emerged that could pose risks to national and regional financial stability if unaddressed.

IMF pointed out that with their rapid expansion; the largest pan-African banks have become systemically important in many of their host countries, raising concerns about spillover risks.

“Most groups conduct their foreign operations through subsidiaries, which rely on local deposits for funding, somewhat mitigating potential contagion. However, with limited information about intragroup exposures and interconnections within pan-African banks and cross-border cooperation between supervisors just emerging, undetected risks could be mounting,” IMF said.

“In addition, pan-African groups have become more complex, encompassing nonbank activities that could give rise to additional contagion channels”.


Read this week's paper