The International Monetary Fund (IMF) has called for a more rigorous and better supervision of pan-African banks to ensure that the banks are strong and are immune to crises.
Speaking on Wednesday in Mauritius at a conference on Cross-Border Banking and Regulatory Reforms in Africa, Ms Christine Lagarde, the Managing Director of IMF, said since the global financial crisis of 2008, pan-African banks and other institutions have become important features of the continent’s financial landscape, therefore they require new regulations.
There have been concerns that unless the pan-African banks are strengthened and well capitalized, any stress experienced by a pan-African bank could affect the economy of countries where the bank has branches.
According to Lagarde, “They (pan-African banks) 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.”
While noting that the expansion of cross-border banking had been impressive, the IMF boss added, “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.”
She noted that the way out is to ensure that supervision takes place on a consolidated basis.
Lagarde added, “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.”
The IMF boss also said that resolution frameworks and mechanisms are insufficient in many countries, noting that “This takes on added significance in light of the recent sharp slowdown in African growth.”
According to her, while it is always tempting to ease up on supervision when there are worries about economic growth and banks face pressure to expand credit, “but we ease up at our own peril.”
The IMF boss assured of the resolve of her organization to give the needed support to banks and governments towards ensuring better supervision.
According to her, “Effective cross-border regulation and supervision also depend on technical expertise. This is where the IMF can help you build capacity and keep up with the rapid changes in the banking industry.”
“We constantly engage on these issues as a participant in international bodies, where we seek to provide a voice for all of our member countries. And we have worked with your governments for many years to provide advice and assistance across a range of economic policy issues.”
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