BANKS IN AFRICA SHOW INCREASE IN COMPETIVENESS POST FINANCIAL CRISIS
In
a study to unearth new insights in the competiveness of Sub-Saharan
Banks post the 2007/2008 global financial crisis, Steve Motsi,
University of Stellenbosch Business School (USB) top Master of
Philosophy in Development Finance student of 2014, found that despite
low levels of financial intermediation, the degree of competition among
banks increased due to the effect of reform policies, largely initiated
in a pre-crisis era.
His
research of 83 banks in South Africa, Mauritius, Nigeria, Ghana, Kenya
and Uganda, representing 65% of the total GDP of Sub-Saharan Africa over
the period 2008–2013, a time in which substantial macroeconomic
challenges and increased systemic risk materialized.
“Naturally
in the aftermath of the crisis competitiveness diminished in light of
the crisis and system instabilities exposing deficiencies in bank
management. A significant recalibration of prudential policies followed
as regulators sough to restore system stability which altered the
competitive conduct of banks,” says Motsi.
Motsi
says that during the 2007/2008 financial crisis, substantial success
had been achieved in implementing the liberalization process in
countries across Sub-Saharan African aimed at deregulating banking
activity, privatizing state-owned banks, permitting entry of foreign
banks, easing cross-border capital flow, driving technological
innovation and liberalizing interest rates.
“The
outcome was an increase in private sector credit, efficiency in credit
and asset allocation and adoption of the new technologies in product
design and distribution. However during this time significant prudent
reform was initiated with the aim of improving transparency and
disclosure, stemming systemic risk, enforcing recapitalization of banks,
adopting counter-cyclical approaches to risk management and improving
financial literacy.
“Credit
to the private sector declined post-crisis yet interest rates lowered
due to improving information to households and SME’s. Banks in
Sub-Saharan Africa had lagged behind the quality and standard of
developed economies as the level of financial intermediation and access
to financial services, especially households and small firms, remained
relatively low.”
Post-crisis
private sector credit to GDP declined to an average of 56% versus 60%
in the pre-crisis era (2000-2007). Several countries such as Chad, DRC,
Sierra Leone, Congo Republic and Equatorial Guinea exhibited very low
levels of average private sector credit to GDP, less than 10%, whilst
South African and Mauritius reflected more sophisticated financial
intermediation with averages of 150 and 93%. Most banks of foreign
origin focused much of their lending on large corporate or older,
established SME’s.
Significantly
high lending interest rates reflected a high-risk perception with
several countries such as Madagascar, Malawi, Ghana, DRC and Gambia that
perpetuated the incident of high rates, each with post-crisis averages
of 52%. In contrast South Africa, Namibia and Mauritius with more
advanced financial infrastructures exhibited average rates of less than
10%. However across the sub-continent lending rates declined to an
average of 19 percent compared to 26%.
Motsi argues that in order for banks to increase their growth there are a few key considerations.
“Policymakers
should continue to develop and promote policies geared towards the
development of financial intermediation and improved competitive conduct
of banks in Sub-Saharan Africa. Liberalisation of interest rates should
remain a pivotal tool for increased contestability of markets and
sustainable performance, whilst attracting new players into the market.
In addition policy design in modernisation of banking infrastructure via
technological advancement in branchless or alternative distribution
should further ease contestability by alleviating wage rates.
“Prioritising
the development and modernisation of credit information systems should
further reduce perceived high risk of lending, which currently inhibits
effective financial intermediation.”
He
says that the majority of banks remains averse to extending their
markets beyond a traditional large corporate base and should prioritise
SMEs and households.
“Financial
literacy programmes as well as policy designed that incorporate the
development of financially inclusive products targeted at lower income
households and SME’s would make a significant contribution to
competitiveness and growth. Product design would focus on affordability
with minimal transaction cost, convenience through alternative
distribution, flexibility by means of unsecured loans and security
through non-conventional verification such as biometrics. The national
payments system, a backbone of effective financial intermediation,
should continue to be modernized for increased processing efficiency and
security of transactions in line with global trends.”
In
addition Motsi says enhancing contestability of markets by privatizing
state-run banks and promoting regional integration should remain key
policy objectives. This would ensure a level playing field for existing
competitors and present an opportunity for new investors. Furthermore
new investment would expand and develop the credit industry, ultimately
driving real sector growth.Source: allghananews.com
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