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Cross-Border Banking in Africa – What are the Opportunities and Challenges as African Banks Expand Across the Continent?

Dorothe Singer's picture

Cross-border banking has been an important part of Africa’s financial systems since colonial times. While it has long been dominated by European banks, its face has changed significantly over the past two decades. African banks have not only significantly increased their geographic footprint across the region (see Figure 1) but have also become economically significant beyond their home countries in a number of countries across Africa. As their banks have expanded across borders, South Africa, Nigeria, Morocco, and Kenya have emerged as the dominant regional financial centers (see Figure 2). Yet despite this increase in cross-border banking activity within Africa there has been a lack of comprehensive research and analysis on this topic. In a new policy report we try to fill this gap by documenting the growth of cross-border banking in Africa and assessing the risks and benefits of cross-border linkages as well current supervisory arrangements for cross-border supervisory coordination.

Figure 1: Cross-Border Expansion of African Financial Groups over Time,
1990-2013

 Cross-Border Expansion of African Financial Groups over Time, 1990-2013

Nick Kristof on microfinance, banking access and a way out of poverty

Asli Demirgüç-Kunt's picture

In today’s New York Times, Nicholas Kristof gives the example of a family in Malawi that improved their lives as the result of a village savings group.  We know that access to banks, cooperatives, and microfinance institutions has allowed many adults like the Nasoni family to safely save for the future, invest in an education or insure against risk, but just how widespread is the use of formal financial products worldwide? How do the barriers to access vary across regions? And how do the unbanked manage their finances?

In the past, the view of financial inclusion around the world had been incomplete. With the release of the Global Financial Inclusion (Global Findex) Database we now have a comprehensive, individual-level, and publicly-available database that allows for comparisons across 148 economies of how adults around the world manage save, borrow, make payments and manage risk. As cited in the article, the Global Findex data shows that more than 2.5 billion adults around the world don’t have a bank account.

Lessons from Recent Crises and Current Priorities for Finance Practitioners and Policy-Makers

Maria Soledad Martinez Peria's picture

On May 14-18 the World Bank held its annual Overview Course on Financial Sector Issues in Washington, DC. Geared towards mid-career financial sector policy-makers and practitioners, the objective of this one-week event was to discuss issues of current and long-run importance to the development of the financial sector. This year’s course focused on Lessons from Recent Crises and Current Priorities for Finance Practitioners and Policy-Makers. The timing was quite fitting—the course took place the same week that JP Morgan’s billion-dollar trading became public and the European crisis intensified as Greek banks suffered large deposit runs.

Perhaps not surprisingly in light of recent events affecting the financial sector in the US and Europe, three main broad themes resonated in many of the sessions of the course: (1) the need for more and better bank capital, (2) the importance of putting in place the right incentives for banks to limit the risks they take, and (3) the role of macroprodudential regulation in monitoring and limiting systemic risk.

Reforming Bank Regulations

Asli Demirgüç-Kunt's picture

It is no surprise that the recent financial crisis has sparked a new round of regulatory reform all around the world. The crisis has certainly exposed significant weaknesses in the regulatory and supervisory framework and led to a debate about the role these weaknesses may have played in causing and propagating the crisis. As a result, reform of regulation and supervision is a top priority for policymakers, and many countries are working to upgrade their frameworks. But there are more questions than answers: What constitutes good regulation and supervision? Which elements are most important for ensuring bank soundness?  What should the reforms focus on?

The Basel Committee – a forum for bank supervisors from around the world – has been trying to answer these questions since 1997. The Committee first got together that year to issue the Core Principles for Effective Bank Supervision (BCPs), a document summarizing best practices in the field. Since then many countries have endorsed the BCPs and have undertaken to comply with them, making them an almost universal standard for bank regulation. Since 1999, the IMF and the World Bank have conducted evaluations of countries’ compliance with these principles, mainly within their joint Financial Sector Assessment Program (FSAP). Hence the international community has made significant investments in developing these principles, encouraging their wide-spread adoption, and assessing progress with their compliance.

In light of the recent crisis and the resulting skepticism about the effectiveness of existing approaches to regulation and supervision, it is natural to ask if compliance with this global standard of good regulation is associated with bank soundness. This is what I have tried to do with Enrica Detragiache and Thierry Tressel, two of my colleagues from the Fund. Specifically, we test whether better compliance with BCPs is associated with safer banks. We also look at whether compliance with different elements of the BCP framework is more closely associated with bank soundness to identify if there are specific areas that would help prioritize reform efforts to improve supervision.