1. Banking
Perspectives on
the Financial
Crisis: A View from
Africa
Keith Jefferis
Egyptian Banking Institute – 3rd Annual Banking
Conference
Cairo, November 22-23, 2009

2. Impact of the Global Crisis on
Banks in Africa
Banks in Africa are affected, of course, but not in the same way
as banks in developed countries
Depends on level of financial development and integration with
global financial markets
Direct impacts:
Bank balance sheets
Vulnerable financial institutions & systems
Indirect impacts:
Arising from broader economic developments
Changes in international supervisory standards

3. Direct impact of the crisis has
been quite limited
Financial institutions & systems
Little evidence of institutional or systemic vulnerability
Little need for central bank or government interventions (rescue
packages, liquidity support, bank recapitalisation or
nationalisation)
Limited contagion from developed country problems
Main exception: Nigeria – vulnerability to oil sector and stock
market lending
Why is this?
Nature of balance sheets
Supervision and capital
Resilience resulting from macroeconomic & financial reforms

4. Balance sheets are low risk
Lending Mostly deposit-funded
Limited use of wholesale funding
Low leverage
Liquidity High
Moderate loan-to-deposit ratios
Risk Limited exposure to high risk/exotic assets
Limited off balance-sheet operations
International links Limited reliance on foreign funding
Limited integration with int. capital markets
In some cases, assisted by exchange controls

5. 40%
0%
10%
60%
90%
20%
30%
50%
70%
80%
S Africa
Swaziland
Nigeria
Kenya
Burundi
Ghana
Source: IMF SSA REO Oct 2009
Zambia
Niger
Ethiopia
Côte d'Ivoire
Angola
Mauritius
Chad
Tanzania
Botswana
Gabon
Very liquid banks
Liquid assets as % of total assets, 2007
Rwanda
Moz'bique
Liberia
Congo, Rep.
Congo, DR

6. Supervision & capital
Quality of supervision has been improving in SSA
FSAPs -> financial sector development programmes
International standards: Basel core principles
Investment in skills & infrastructure
Banks are well capitalised
Generally highly profitable
CARs often above international minimum

7. 15
0
10
25
20
30
5
Mali
C. d'Ivoire
Rwanda
C. Verde
Cameroon
Congo, DR
S Africa
Niger
Burk. Faso
Mauritius
Source: IMF SSA REO Apr 2009
Burundi
Senegal
Guinea
Lesotho
M'gascar
Moz'bique
Eritrea
Seychelles
CAR
Namibia
Ghana
Congo, Rep.
Gabon
Tanzania
Average
Malawi
Kenya
Botswana
Zambia
Regulatory Capital/Risk-weighted assets, 2007
Ethiopia
Nigeria
Robust Capital Adequacy
Swaziland
Angola
Zimbabwe
Liberia

8. Indirect Impacts – more important
in longer term
Global risk environment
Trade flows & growth
Remittances
Exchange rates
Credit slowdown
Supervisory changes

9. Global risk environment
Volatility in price/appetite for risk
Volatility in short-term capital flows for EMs
short-
Higher equilibrium price for risk when dust settles
Tightened risk assessment criteria in global banking groups
Restricted access to capital (esp. credit lines to domestic banks
from international banks)
African debt & equity markets adversely affected by sell-offs by
sell-
international investors

10. South Africa EMBI+ spread

11. Total financial flows to Africa …
volatile but recovering
Annual flows Quarterly flows
35,000 3,500
30,000 3,000
25,000 2,500
20,000 2,000
15,000 1,500
10,000 1,000
5,000 500
0 0
2004 2005 2006 2007 2008 Q308 Q408 Q109 Q209

12. Slowdown in trade flows &
economic growth
Most African economies highly export-dependent
export-
Export sectors badly hit due to weak demand/prices (esp. commodities)
Trade finance less accessible (more expensive, shorter tenors)
Banking vulnerability from sectoral loan concentration
Weakened household sector -> credit risk
Rising arrears and deteriorating quality of collateral
Larger current account deficits and constrained access to capital markets
leads to exchange rate volatility, adding to uncertainty and balance sheet
risks

13. Remittances
Major contributor to FX earnings and household income in
many African countries
Vulnerable to economic slowdown in developed countries
Reinforces balance of payments weakness and household
balance sheet problems
Banks handle most remittance payouts – source of fee income
Latest estimates suggest modest decline in remittances to
Africa – around 6% in 2009

14. Tighter credit conditions restrict
business opportunities
Reduced risk appetite and higher regulatory cost of risk
Stricter lending criteria (collateral/deposit requirements)
Flight to quality
Limited appetite for new business
Wider deposit-lending margins
deposit-
Reduced fee income (fx, remittances, arrangement fees)
Need to be innovative in developing/pursuing business opportunities
Slowdown in credit growth could exacerbate economic difficulties

15. Changing regulatory regime will
have an impact
Review of Basel II (-> Basel III?)
(- Imposes many needs on African
Increased regulatory capital vs banks & regulators:
risk surveillance/early warning
More complex regulatory HH and corporate balance
regimes posing challenges for sheets, indebtedness,
regulators vulnerabilities
high frequency/timely data
Countercyclical capital
requirements contingency plans/bank
resolution mechanisms
Problems in deposit insurance?
calibrating/identifying turning
points supervisory co-operation
co-
Macroprudential supervision mapping of financial sector
interlinkages
Stress tests
Banks – improved risk
management & internal stress-
stress-
testing

16. Main risks facing African banking
systems going forward
Delayed impact of financial crisis via economic linkages & slow global recovery
Export/trade problems -> banking problems -> wider economic impact
Bank credit slowdown - > wider economic impact
Weak surveillance, limited contingency plans, weak cross border supervision if
conditions to deteriorate
Weak risk management within banks
Structural changes in global risk parameters making capital – raising more difficult
More complex regulatory regimes making it more difficult to achieve international
standards

17. Closing Remarks
African banking systems came through global financial crisis
largely unscathed, but longer term impacts may be adverse,
with uncertain time lags and depth of impact
Main concerns emanate from interaction of economic
developments and financial conditions
Banks will need to be vigilant with regard to risks and respond
to new supervisory demands, while pursuing new lines of
business
Regulators need to improve surveillance, improve contingency
planning and supervisory co-operation, while governments
co-
pursue longer term reforms

18. Thank you
keith@econsult.co.bw