Deloitte on Africa Banking regulatory environment and supervision in Africa A bank in its simplest form has been described as a financial institution that uses money deposited by customers for investment, pays it out when required, makes loans at interest and exchanges currency. Banks are often regarded as the life-giving force of an economy, the heart of free-market economies. They are important in providing external and internal funding sources to a country by issuing loans to individuals and companies and acting as a “safe-box” for depositors. Banks have the potential of helping to fuel economic growth, raising people’s standard of living, self-realisation and inclusion in the process. Equally, as we have witnessed over the past two years, banks can wipe out trillions of dollars of wealth around the world, bringing capital markets and economies to a brink of a collapse (Leo Tilman).1 The global financial crisis resulted in worldwide banking regulation reforms in different scales, with more stringent regulations on bank capital, liquidity and corporate governance structure being seen as the best way to restore the stability of financial markets. 1
Leo M. Tilman is president of L.M. Tilman & Co., a global strategic advisory firm, and teaches finance at Columbia University
The World Bank Database, Banking Survey (2007)
Meeting the growing demand for retail banking services in Africa, Mthuli Ncube, African Development Bank
While banks serve relatively the same purpose globally, there is a plethora of banking regulations across the nations and jurisdictions. In the context of the banking regulatory environment in Africa, this paper aims to draw a comparison of banking regulations, requirements and by-laws of some of the fastest-growing Africa economies in the world, and some of the largest economies in Africa; namely Ghana, Mozambique, Angola, South Africa, Ethiopia, Kenya and Nigeria, highlighting the key commonalities arising among these, along with the areas of differentiation to note when developing entry or expansion strategies in these economies.
The World Bank analysed the banking regulations, and this paper will focus on some of those key pillars identified: Entry into Banking, Ownership, Capital, Activities, External Auditing Requirements, Internal Management/Organisational Requirements; Liquidity and Diversification Requirements, Depositor (Savings) Protection Schemes, Provisioning Requirements, Discipline/Problem Institutions/Exit, and Supervision.2 Entry into banking African economies largely promote and seek inward investment. In the banking sector, this is achieved by allowing foreign firms to establish banks within Africa, following the same requirements and regulations that local banks adhere to. Many of the largest banks in these economies are international banks with branches throughout Africa; for example, the Barclays group holds a majority stake (55.5%) in the South African ABSA group and derives nearly 20% of its revenue from ABSA’s African operations. With a reportedly growing middle class in Africa (34% of the continent’s population) and a need for sophisticated retail banking services by this newly found affluent class, domestic, regional and international banking groups are pioneering new and innovative retail banking products. This has prompted some governments to take steps towards reduction of barriers to entry into the retail banking sector. According to recent estimates, retail banking in Sub-Saharan Africa is projected to grow by 15% per annum by 2020, bringing the sector’s contribution to GDP to 19%, from 11% in 2009.3
Entry into the banking sector is regulated by each country’s central bank, which is the sole authority responsible for issuing banking licences. Barring Angola, Nigeria and South Africa, the minimum capital requirements do not vary depending on the nature of the banking business to be licensed. The minimum capital requirements can be sourced from borrowed funds by th