Low regulatory standards hinder African banks
According to an investigation just completed by the Nigerian Securities and Exchange Commission, the regulatory frameworks and cross border supervision in some frontier markets are often inadequate.According to an investigation just completed by the Nigerian Securities and Exchange Commission, the regulatory frameworks and cross border supervision in some frontier markets are often inadequate.
The Nigerian market authority was investigating Ecobank after allegations of mismanagement last year. In many frontier markets, the regulation is not up to international standards and large groups are badly supervised, despite the technical support of multilateral agencies and international regulators such as France’s.
Large pan-African groups face badly controlled risks, related to the volatility of many political and economic environments, the poor quality of some assets and risks concentration.
One reason for the lack of supervision is the challenge presented by trying to find staff with strong credit and risk control skills. The cultural diversity of the countries of operation also makes adequate supervision difficult.
The lack of consolidated supervision among national regulators is also an issue. A group like Ecobank, which has operations in 23 countries, is supervised by 21 different agencies.
Fitch, the rating agency, believes only the regulators of South Africa, Morocco, Kenya and Nigeria are really strong, and that outside these countries, transparency is limited.
This problem is affecting banking groups' ratings, and in turn, the financing costs, lending rates and ability to contribute to development.