Malawi’s First Merchant Bank (FMB) completed its acquisition of Barclays Plc’s Zimbabwean assets, cementing the dominance of pan-African banks on the sub-Saharan Africa (SSA) banking landscape.
Financial Matters: Tinashe Kaduwo
Over the years, there has been a rapid rise in pan-African banks with seven major banks having a presence in at least ten African countries. These pan-African banks are now much more important in Africa, overtaking the European and US banks, which traditionally dominated banking on the continent.
European banking groups, which used to dominate include Standard Chartered (United Kingdom), Barclays (United Kingdom) and Société Génerale (France), in part reflecting the colonial legacy. These banks have operations in at least nine countries and are of systemic importance in their respective host countries. In particular, European banks’ presence is mainly concentrated on Anglophone countries for British banks, francophone countries for French banks, or lusophone countries for Portuguese banks. Other foreign banking groups have smaller operations, and these include Citigroup (United States) and Bank of Baroda (India).
The expansion of pan-African banks accelerated following the global financial crisis and partly due to the retrenchment of lenders from advanced economies. These pan-African banks have expanded mainly through the acquisition of existing banks via their subsidiaries.
Ecobank, which also has a presence in Zimbabwe, has the most widespread footprint, operating in 33 sub-Saharan African countries, while Standard Bank, which trades as Stanbic here in Zimbabwe, is the largest group based on the size of its balance sheet. Other large pan-African banks include Attijariwafa, Bank of Africa, United Bank for Africa and Oragroup among others. Smaller banks that have been on an expansion drive include Zenith Bank, Skye Bank and Guaranty Trust Bank.
After buying a majority stake in Barclays Bank Zimbabwe, FMB — a pan-African bank with interests in Malawi, Mozambique, Botswana and Zambia — joins the rising tide of pan-Africanism.
The growth of pan-African banks brings new opportunities and benefits to the African continent. It reflects the increase in economic integration within Africa, supports financial inclusion and gives rise to greater economies of scale.
In addition, these pan-African banks are filling the gap left by European and other Western banks. They are becoming the lead arrangers of syndicated loans and financiers of cross-border trade in Africa. In 2016, for example, Western banks made headlines when they reviewed their correspondent banking relationships, terminating their links with banks across the Caribbean, central Asia, the Pacific islands and Africa.
The trend, known as de-risking, left a gap in the banking landscape, as correspondent banking plays an important role in the global payments system by enabling cross-border transactions and access to cross-border products.
Locally, pan-African banks such as Ecobank and Standard Bank capitalised on the opportunity and built relationships with local affected banks. The impact of the de-risking trend by Western banks was, therefore, limited due to the role played by pan-African banks. However, the rapid expansion of pan-African banks poses some oversight challenges, as noted by the IMF. If these oversight challenges are unaddressed, they may increase systemic risks given the constrained and under-resourced supervisory capacity in most African countries including Zimbabwe.
Pan-African banks raise the importance of transparency and disclosure, good governance, strong prudential oversight, and a legal and regulatory framework that supports effective and comprehensive supervision and crisis management. Despite supervisory concerns, the rapid rise of pan-African banks at a time when global banks such as Barclays are exiting, bodes well for financial sector development in Africa. Supervisory authorities such as the Reserve Bank of Zimbabwe are advised to strengthen their roles and drive policies towards improving cross-border cooperation to avoid raising systemic risks and financial instability.
Kaduwo is an economist at Equity Axis. Contact email@example.comfirstname.lastname@example.org