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


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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,

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

The expansion of African banks has shifted responsibilities of bank supervision from the home countries of European banks to African policymakers. As such they face two policy objectives with inherent trade-offs: reaping the benefits from financial integration while effectively safe-guarding banking systems against cross-border contagion and fragility.

Figure 2: Ownership Linkages Among African Banks*

 Ownership Linkages Among African Banks

* Note that Ecobank is headquartered in Togo but considered to be South African because the largest (minority) shareholder is South African. See the report for more details.

Given the low levels of financial intermediation in most African banking sectors and the small size of many economies, Africa stands to gain substantially from cross-border banking in terms of financial deepening and increased outreach if it takes advantages of the financial innovation and efficiency gains cross-border banks can bring. Yet despite increasing financial integration across the continent, the impact of cross-border banking on banking efficiency and outreach has been limited. Most banks initially follow their corporate clients abroad and are reluctant to serve the lower end of the market, although exceptions exist. One of the constraining factors is the often still rudimentary financial infrastructure in many African countries. Strengthening financial infrastructure, including payment systems and credit registries, can help deepen the benefits from cross-border banking, especially if undertaken in a coordinated manner across countries. Another constraining factor is that banks expanding across Africa are almost universally required to establish not only self-standing subsidiaries but also to establish local IT functions, use predominately local labor, and institute independent local management functions.  This kind of “fortress banking” is preferred by many host country regulators for stability reasons but limits  economies of scale that are crucial if banks are to operate more efficiently, particularly across the small financial systems that characterize the majority of Africa countries. A move towards more integrated banking models, such as more integrated subsidiaries, could help in lowering the cost of doing business and thus making service provision to the lower end of the market more cost-effective and attractive.

But increasing financial integration also comes with new potential risks. To effectively safeguard financial systems against fragility and cross-border contagion, supervision needs to be strengthened at the national level and cooperation enhanced among home and host countries of cross-border banks. The challenging but essential task of establishing or improving regulatory frameworks for consolidated supervision is at the top of the agenda in this respect. In order to effectively carry out consolidated supervision, authorities require sufficient data on the activities of banks. However, information on the size and nature of cross-border banking in Africa is currently still hard to come by or simply unavailable. Improving the availability and regular exchange of relevant information will therefore be critical and can be fostered through Memoranda of Understanding, and Colleges of Supervisors. While considerable progress is being made in establishing such formal structures of cooperation, the true challenge is to make them effective and enable regular cooperation based on trust and mutual recognition. In addition to being essential for consolidated supervision, such information and regular cooperation will also allow regulators to move towards a risk-based approach to supervising cross-border banking.

As we have learned during the recent financial crisis, it is also important to look beyond these tools of cooperation in normal times and towards crisis preparation. A prerequisite for this is putting in place effective mechanisms for bank exit at the national level. At the same time, measures to strengthen bank resolution frameworks and crisis preparation should also be extended across borders and include joint crisis simulation exercises and crisis management groups.

Given the widely varying circumstances of African countries, including in terms of financial sector development and level and direction of cross-border linkages, concrete policy recommendations will of course need to be adapted to the context of individual countries. But the overarching conclusion we see arising from the report is that information exchange about the activities of banks’ cross-border activities needs to be strengthened considerably. This will not only be an important first step in facilitating better supervision of cross-border banking activities and thus contribute safeguarding the stability of the financial system but also in fostering closer collaboration between national authorities. This will be key in realizing the benefits of cross-border banking with regard to financial deepening and outreach.


Beck, Thorsten, Michael Fuchs, Dorothe Singer, and Makaio Witte. 2014. “Making Cross-Border Banking Work for Africa.” GIZ and The World Bank.


Dorothe Singer

Economist, Development Research Group

Thorsten Beck

Professor of Banking and Finance, Cass Business School

Michael Fuchs

Consultant on Financial Sector Development

Makaio Witte

Financial Sector Development Specialist, GIZ

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