Friday, August 18, 2017 8:25 PM

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Future of Africa


 

I travel each year to several African countries to deepen my understanding of one of the world’s most dynamic and diverse regions where the Fund is deeply involved.

Despite the current economic slowdown, I remain amazed by the vitality I witness: business start-ups investing in the future, innovators creating mobile apps, new infrastructure under construction, and a growing middle class. I have had the honour of meeting people from all walks of life who are building better futures for themselves and their countries. They share a vision of development based on strong, sustainable, and inclusive growth.

Your countries share similar hopes — not least of which is the need to develop well-functioning financial systems that are critical for Africa’s growth. But in many countries, access to finance remains limited.

Since the global financial crisis, pan-African banks and other institutions have become important features of the continent’s financial landscape. They are one more piece of evidence of the region’s dynamic changes. These institutions have filled the gap left by the retrenchment of European and American banks since the crisis. They have supported the growth of individual countries with better products and services. They have advanced economic integration and helped foster financial inclusion, they have leveraged technologies, including disruptive ones — witness the great gains of mobile banking in Kenya.

These are important advances that can offer lessons to the world outside of Africa.

All over the world, these advances present central bankers and supervisors with new challenges; vigilance and cooperation will be needed to ensure stability and resilience. The growth of pan-African banks comes at a time of regulatory change worldwide. These reforms — spurred by the 2008 crisis — aim at building stronger defences against future crises.

Much of the work to preserve financial stability falls to the group assembled here today. The new regulatory demands require your resources and skills. And you are asked to achieve unprecedented cooperation with other African supervisors — and with international regulators.

In addition, you face a delicate balancing act: you need to enhance regulation and supervision but, in implementing global standards, you also must take into account local circumstances.

Fortunately, you are not alone. The IMF and other bodies recognise the challenges you face and are committed to drawing on our global experience to assist you.

Today I will delve into some of the issues that you face, with a focus on the supervisory challenges of pan-African banking in the international context, and the IMF role in this work.

Let us begin with the regulatory challenges. As bankers and bank supervisors, you understand the potential vulnerabilities that current slow global and regional growth presents. The changes in Africa’s financial sector landscape over the past decade call for added vigilance.

The expansion of cross-border banking has been impressive. Ten African banks now have a presence in at least 10 countries on the continent, and one is present in more than 30 countries.

This expansion inevitably has brought a host of new complexities. With varying regulatory regimes across countries at different stages of financial sector development, it should not be surprising that effective oversight of cross-border banking presents immense challenges. Unified accounting and reporting standards are absent. Data weaknesses abound. National secrecy laws and constraints on information flows impair cooperation among supervisors in home and host countries. The key is to ensure that supervision takes place on a consolidated basis.

Bank holding companies are headquartered in one country and have subsidiaries across the region that operate under their hosts’ rules and regulations. This places an important burden on supervisors who have primary oversight of the holding companies. It is also essential that host countries are informed and consulted, and for host country supervisors to be involved.

Resolution frameworks and mechanisms are insufficient in any number of countries—let alone on a regional basis. This takes on added significance in light of the recent sharp slowdown in African growth.

I know that each and every central banker, supervisor, and bank executive in this room is deeply aware of these issues. You have taken important actions already.

Several of you who are home to pan-African bank groups have established supervisory colleges. This allows you and supervisors in host countries to conduct more comprehensive assessments of risks at individual institutions.

Home supervisors need to ensure that supervisory colleges work well and that host countries are informed and regularly consulted. Host supervisors need to be active in this collaborative process as well. Home supervisors need to be aware of how their decisions affect smaller host countries.

It is also good to see that the countries of East Africa have provided a model for harmonising supervisory data and practices as part of their effort to create an integrated economic community.

These are welcome developments. The challenge is to build on the successes in countries where steps have already been taken, and extend this effort throughout Sub-Saharan Africa.

 

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