African banking sector integration risks crisis

Nene says regulatory reforms required to strengthen industry

THE integration of the African banking sector may increase the risk of a financial crisis‚ Finance Minister Nhlanhla Nene warned on Wednesday.

However‚ he said this could be avoided with better regulation and the introduction of crisis prevention and resolution mechanisms.

Most African banks fared relatively well following the 2008 global financial crisis‚ in contrast to a number of US‚ UK and European banks which had to be bailed out.

Speaking at The Economist’s banking summit in Sandton‚ Nene said the African banking sector is growing in line with economies across Africa, which are expanding at a faster pace than much of the rest of the world.

The sector is also becoming increasingly integrated regionally and globally.

“The more complex African banking becomes‚ the more likely it may create a financial crisis.”

In response‚ policy makers need to improve the regulatory environment and market infrastructure‚ he said. “This is a never-ending process.” Economist Intelligence Unit director of Africa, Pat Thaker, said the next financial crisis might come from Africa as lending to consumers and corporations is growing but is not always highly regulated.

“Will the next financial crisis come from this continent? Perhaps‚” she told the summit. “When the economy dives very quickly you will find a debt crisis taking place‚ even in South Africa where private lending has risen dramatically in the last decade.”

Unsecured lending in South Africa took a hit earlier this year when the country’s largest unsecured lender‚ African Bank‚ collapsed‚ prompting the Reserve Bank to step in and place it under curatorship.

The unsecured lending markets in Angola and Botswana were showing warning signs‚ Thaker said.

Nene said regulatory reforms had to be carried out to strengthen the financial system with “the fundamental objective of improving the lives of the poor”. He said there was a perception that efforts to widen financial inclusion would lead to increased risk and have a negative effect on the stability of the financial system.

“However‚ if financial inclusion is approached from a systemic perspective‚ and responsibly progressed‚ the opposite . . . is true‚” he said.

A report on financial inclusion in South Africa, commissioned by the Group of 20 Global Partnership for Financial Inclusion, found that links exist between financial inclusion‚ financial stability‚ financial integrity and financial consumer protection.

“It is thus possible to advance financial inclusion in such a way that stability‚ integrity and market protection are enhanced‚” said Nene.

Thaker said banking in Africa‚ with the exception of South Africa‚ was under-developed‚ while growing from a low base. Three-quarters of adults in sub-Saharan Africa did not have a bank account‚ but technology could play an important role in increasing financial inclusion. She expected Chinese firms to enter Africa’s banking sector via acquisitions. — BDlive