Confronting the Global Financial Crisis: Bank Efficiency in Africa

13 Nov 2009 12:31 Africa/Lagos

Confronting the Global Financial Crisis: Bank Efficiency in Africa


TUNIS, November 13, 2009/African Press Organization (APO)/ -- The current global financial crisis that originated in the collapse in the market for sub-prime mortgages in the United States in 2007 initially did not hit Africa directly. The crisis also had little impact on the Sub-Saharan African (SSA) financial systems because the financial sector in Africa remains shallow, uncompetitive and weakly integrated into the global markets.


Despite the fact that money, currencies, and capital markets had the significant pressures by the crisis, they have continued to function normally, and financial institutions in most countries have been stable without emergency support from monetary authorities.


Nevertheless, due to pressures intensified by the crisis, Sub-Saharan African countries are being hit hard as the global crisis has continued to deepen. The spiraling effects of a depressed world economy and the increased risk aversion of investors pose growing risks for Sub-Saharan African financial systems. As a matter of fact, frontier and emerging market countries such as South Africa, Nigeria, Ghana, and Kenya were hit first, suffering falling equity markets, capital flow reversals, and pressures on exchange rates.


Most African economies have a high degree of foreign bank penetration. The large share of foreign-owned banks across Africa has brought stability over the past years but also exposes the region to additional contagion risk. Also, the boosting of domestic banks' efficiency is mainly attributable to raising the number of foreign banks. Central bankers in the Southern African Development Community (SADC) recognize that efficiency in the banking sector is a key contributor to macroeconomic stability. It is also a precondition for economic growth and important for the effectiveness of monetary policy. In the late 1980s and early 1990s, a number of African countries began to restructure their financial sectors in order to boost banking efficiency. However, at present, it is difficult to entirely analyze the impact of the current crisis on the African banking sector because of the limited availability of 2008 bank-level data.


In terms of the assessment of bank performance and profitability as well as the African banking system, commercial banks in SSA so far remain largely sound and do not pose the risks that may be exposed to contagion effects of the current financial crisis.


However, there may be contagion risks from distressed foreign parent banks to local subsidiaries within Sub-Saharan Africa because parent banks could withdraw capital from African subsidiaries; call in loans to their African subsidiaries; no longer invest local profits in local subsidiaries; or do a combination of these. Also, there exists a risk that governments engage in troubled banks that are non-systemic or that supervisory authorities loosen prudential regulations in response to the crisis.


Thus, the financial sector, particularly banks need to be monitored vigilantly in order to minimize vulnerabilities and mitigate risks.



For interview requests, see following contacts / Pour vos demandes d'interview, contacter l'équipe de la BAD à Addis:


Magatte Wade (global coordination): +251 (0) 91 29 45 910.


Lotfi Madani (broadcast): +251 (0) 91 29 45 882.


Aristide Ahouassou (administrative affairs and interviews): +251 (0) 912945873.


Yvan Cliche (web): +251 (0) 91 29 69 330


Sondes ben Chagra (web): +251 (0) 91 29 45 883.


Felix Njoku (press releases): +251 (0) 91 29 45 872.


Andrew Allimadi (UN Economic Commission for Africa communication team): +251 (0) 91 14 02 719.














Contact in Tunis:


Malika AFIF


External Relations and Communication Unit (ERCU)


African Development Bank


BP 323, 1002 – Tunis Belvedère


Tel: +216 71 10 39 03


E-mail: m.afif@afdb.org

Source: African Development Bank (AfDB)

Hot Topics
New Survey: Americans Plan to Spend Less on Holidays but Remain Generous Despite Recession
Platts Unveils Annual Ranking of 250 Top Performing Global Energy Companies
Mortgage Litigation Activity Tumbles
Seasonal Lull as Housing Market Prepares for Christmas - Rightmove House Price Index November 2009
MasterCard Launches MasterCard Mobile Payments Gateway to Spark Mobile Commerce Globally
The Organisation for Economic Co-Operation and Development Improves External Interaction and Collaboration With Jive
Thanksgiving 2009
Quarterly Earnings Reports
Fort Hood Shootings