SA warns of cross-border financial risks to African banking
November 27, 2014, 6:51 am

“The more complex African banking becomes, the more likely it may create a financial crisis,” said South African Finance Minister Nhlanhla Nene on 26 November 2014 [TBP]

“High economic growth, a young population, which will provide a demographic dividend, a growing middle class and increasing foreign direct investment will benefit Africa’s banking system, which will rapidly gain customers and expand across countries,” Nene said at a conference on the Economist’s “Future of Banking in Africa” summit in Sandton on Wednesday.

Economic growth in sub-Saharan Africa this year is expected to be slightly higher than in 2013 at around 6 per cent, says the IMF. Africa has a collective gross domestic product of more than $2,000 billion and is home to seven of the world’s fastest growing economies.

He warned however that African regulators must be wary of growing cross-border financial risks as the continent’s banking system becomes increasingly interlinked over the next decade.

“The more integrated and complex African banking becomes, the more the risk that it may result in a financial crisis,” Nene said.

“We have a solid regulatory framework, but we need to continuously upgrade the regulations and supervision as the environment becomes more complex,” he said.

“This can be particularly challenging in countries where supervisors and other authorities have limited resources, but we are willing and able to assist those countries. Remember that systemic risk knows no borders,” Nene said.

He noted that the exchange of information was not a one-way street as there were many examples in the rest of Africa where South African banks and regulators could learn from the experience of others, particularly when it came to mobile banking and providing banking services to under-served low income households.

South Africans have been facing rising inflation and unemployment and have struggled to keep up with loan repayments.

However, bad loans at South Africa five largest banks – Standard Bank, FirstRand, Barclays Africa , Nedbank and Investec – contracted by 2.1 per cent to 81.8 billion rand ($7.53 billion) in the first half of the year, South Africa’s Central Bank said in October.

Overall, bad debt in the banking system declined marginally to 3.5 per cent of total loans from 3.6 per cent six months earlier.

Entrepreneurial new businesses are eying big opportunity in the African banking sector, said Bob Diamond, former Barclays chief who is investing in banks in the continent. He was speaking at a Financial Times event in London on Wednesday.

Helmo Preuss in Sandton, South Africa for The BRICS Post