The emergence of African cross-border banks, and the new risks they hold
An African bank regulators conference held recently in Uganda brought up an interesting perspective that many at times perhaps overlook. While the emergence of African cross-border banks is a positive sign of growth, it is also a test for the resilience of regulators and the stability of the continent’s banking systems, as the possibility of cross border contagion becomes real.
As reported in The Independent in Kampala, Deputy Governor of the Bank of Uganda, Louis Kasekende, told the meeting that while Africa has had a long presence of international banks, the emergence of Africa-based regional lenders has significantly increased cross-border banking activity. Cross-border operations of African banks have increased ten times in the twenty years since 1990, with vigorous growth seen especially over the last 3 years, according to Inutu Lukonga of the IMF.
Inutu gave examples of exponential growth including Standard Bank (South Africa) which increased its countries of operation from 4 in 1990 to 33 in 2010; Ecobank (Togo) which grew from 5 countries to 30; United Bank of Africa (Nigeria) which grew from 2 countries to 20; and Bank of Africa (Mali) which grew from 2 countries to 10 in the same period.
In Uganda, cross-border expansion is the newest frontier of competition in the commercial banking sector, led by Kenyan banks Kenya Commercial Bank, Equity and Fina Bank, and driven by the increasing integration of the now five-nation East African economy and the anticipation of servicing clients across the borders.
The international banks, notably Stanbic, Standard Chartered and Barclays, already have operations in all or most of these countries. Last month, Standard Chartered launched a “borderless banking” initiative, to enable its clients to operate their accounts in any East African country as if they were in their home branch.
The crossborder trend has grown in tandem with an almost feverish level of new product and service innovations as well as a rapid spread in the use of new technologies. On one hand these developments have improved customer services, and in cases like mobile money and village banking/microfinance, taken banking services to populations previously excluded by traditional banks. However, they have also opened bank doors to new challenges and risks, especially in supervision, and increased the risk of financial instability on the continent.
Inutu said most African banks are members of conglomerates with operations in other sectors including banking, capital markets, insurance, microfinance, pensions, money transfer, leasing and non-financial sectors. This makes for complex corporate structures with multiple holding companies, diverse shareholding structures, opaque ownership, non-disclosure tendencies, and other practices which complicate regulation. “To avoid boom and bust cycles and ensure their sustained contribution to growth, efforts should be intensified to strengthen the regulatory oversight and surveillance of these financial groups,” Inutu said.
Addressing these challenges without stifling the sector’s enthusiasm – should thus continue to be the current pre-occupation of banking regulators.
Article written by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.