Webinar Report: Impact of pan-African banks on financial development in sub-Saharan Africa
On 15 April 2021, the Making Finance Work for Africa Partnership (MFW4A) in collaboration with the Development and Economic Growth Research Programme (DEGRP) and ODI hosted a webinar titled “The impact of pan-African banks on financial development in sub-Saharan Africa”. This session was the second in a two-part webinar series dedicated to exploring recent DEGRP research which synthesises trends and developments in the financial sector across the African continent.
A presentation of key findings was given by the two authors of the report, Sherillyn Raga (ODI) and Judith Tyson (ODI/Finance lead for DEGRP’s Evidence and Policy Group), guiding 144 participants through the recent rise of pan-African banks and the growing risks their prominence poses to macro- and micro-prudential stability. Crucially, pan-African banks (PABs) now have a more significant footprint compared with other foreign banks from outside the region, and are increasingly becoming both economically and systemically important. The authors indicated that policy must respond to their expanding role in Africa’s financial systems to account for their impact on financial inclusion, banking competition and cross-border contagion risks.
Following the presentation, the panellists responded to questions and comments from a highly engaged audience in a dynamic and interactive segment. The first question dealt with the future contribution of pan-African banks to shaping financial sector development, with the authors highlighting their critical importance. PABs have already proven to be a conduit for financial access, as well as instrumental in supporting economic development – especially for micro, small-, and medium-sized enterprises (MSMEs) and the informal sector where access to finance is a key constraint. Judith concluded that PABs have been very positive for accelerating economic growth and inclusivity, so deserve “a big tick” in that regard.
This headline finding was based on empirical evidence that PABs actively influence financial inclusion, playing a key role in lending to MSMEs with higher default risks. Sherillyn highlighted how PABs are filling the gap for the “dire need for MSME funding in Africa,” which could also be indirectly improving household income. With PABs easing financial constraints on start-ups and MSMEs by providing a more predictable income, potentially those employed and working in low-income or informal households are also benefiting.
Serge Mian, CFA and Head of Investments and Investor Relations at Orabank, offered insights from his position within a pan-African bank which operates in four different currency zones with 500,000+ clients. Praising the “very comprehensive research”, Serge added that Orabank’s advantages were rooted in its market-proximity to the social and economic environment of its clients, as well as the efficiency of localised investment decision-making. He identified a current challenge of financing projects from one country to another, spurring the need to find ways for banks to cooperate in different regulatory and legislative environments to fund projects together, for example on public-private partnerships (PPPs) or infrastructure.
Sherillyn delved into this emerging problem of home-host country regulation, mentioning that “the supervision of cross-border banks is very challenging for regulators”. The report emphasised the crucial role for inter-regional regulatory frameworks and cooperation, with the author pointing to nascent efforts in consolidated supervision in South Africa, which could be used as a template for African policy-makers, with a further example being cross-border initiatives in Nigeria.
Strengthening inter-regional harmonisation together with Memoranda of Understanding (MoU) were considered central solutions for counter-balancing the uneven regulatory structures between jurisdictions. Judith also flagged the need to develop rules for managing cross-border liquidity and capital transfers in times of market stress, to ensure financial stability and reduce transmission of economic risks across borders.
Speaking to the risks of global disruptions like the 2007/8 crash, the panellists responded to a question on the role for PABs in reducing the impact of future overseas financial crises. Judith suggested avoiding the “original sin” of dollar funding in international financing which exposes institutions to financial risks due to “the balance sheet mismatch between local currency, assets and US Dollar liabilities”. To protect African economies and financial systems in times of international instability, local currency deposits were seen as key to developing alternative sources of funding. The benefits include being cheap, stable and also conducive to mobilising finance for investments.
Towards the end of the event, the discussion turned to illicit financial flows. Abudulghafar Aroyehun from the Central Bank of Nigeria emphasised the very real practical difficulties in carrying out cross-border supervision and accessing host-country information for anti-money laundering efforts. While acknowledging the very difficult problem, Sherillyn again cited MoUs (as in Uganda) as the way to go until international or regional standards could be harmonised. Judith gave a working example of the G20 as an option for authorities (legal or regulatory) to promote the exchange of information on a very granular level in relation to the beneficial ownership of financial transactions and assets, adding that this will be increasingly crucial with illicit financial flows emerging across the region – particularly in real estate markets.
The webinar was wrapped up with final closing remarks, with Judith thanking the DEGRP finance researchers who provided the evidence for the report. Sherillyn expressed her thanks to MFW4A for hosting the event and concluded by saying: “We are looking forward to engaging more with practitioners, as well as the wider population of Africa, towards whom our research is actually catered.”
For more details on this session’s content, the event recording is available below. The webinar presentation can also be downloaded via this link.