Pan-African banks' expansion could raise systemic risks, says IMF
The IMF believes that supervisory capacity is constrained.The rapid expansion of cross-border banking in Africa in recent years creates challenges that could increase systemic risks, the International Monetary Fund (IMF) said in a new report.
Pan-African banks have a systemic presence in around 36 countries and are now more important than the continent's long-established European and American banks.
They are improving competition, driving innovation, and bringing new opportunities for diversification for the home countries.
But the report states that supervisory capacity is constrained and under-resourced in most of Africa, which opens new channels for transmission of macro-financial risks and other spillovers across home and host countries.
"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.
This expansion has created a network of systemically important banks, whose financial health in some cases is not fully known due to gaps in consolidated supervision.
The paper includes a set of policy recommendations, among which high priority is given to implementing consolidated supervision, enhancing cooperation on crisis management and resolution, ensuring effective supervisory colleges are in place for all the pan-African banks, and creating an oversight committee of main cross-border bank regulators to drive the reform agenda.