Rapid expansion of cross-border banking in Africa poses oversight challenges, IMF warns

Pan-African banks have a systemic presence in around 36 countries and are now more important than the continent’s long-established European and US banks. However, supervisory capacity is constrained and under-resourced in most of Africa. Progress is being made in some areas, but efforts to strengthen oversight need to be intensified, the same source indicates.

The increasing trade linkages between African countries induced banks to follow their clients abroad. The significant improvements in macroeconomic performance and the opportunities arising from large unbanked populations across the continent has become fertile ground for the expansion. On the other hand, the rise of pan-African banks also opens new channels for transmission of macro-financial risks across home and host countries. As these groups develop in reach and complexity, significant supervision gaps, governance issues, and questions about cross-border resolution have emerged. 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, IMF has also stated.

The lack of regulatory oversight of bank holding companies and their supervision on a consolidated basis in some home jurisdictions needs to be addressed urgently, according to a report drafted by IMF. 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.

The IMF staff is also exploring ways to deepen the analytical work through stress tests of major pan-African banks and to better understand the interconnectedness of cross-border linkages and vulnerabilities. In addition, a dedicated technical assistance effort will be elaborated with IMF partners in Africa to support needed reforms across the continent.