Pan-African Banks Research Articles

Absorption and profitability: evidence from the expansion of pan-African banks

ABSTRACT Several local banks in the West African Economic and Monetary Union (WAEMU) were absorbed (acquired) by pan-African banking groups over the last two decades. These acquisitions occur in the context of a rapid and ongoing expansion of these banking groups that is transforming Africa’s banking landscape. This paper estimates the impact of two waves (2013 and 2017) of absorption of local banks by pan-African banking groups on the absorbed banks’ profitability, using a dynamic difference-in-differences method that allows for heterogeneous treatment effect. We find the absorption treatment has positive and significant impacts on the return on assets of local banks, but negative ones on their return on equity. This suggests that pan-African banking groups successfully operate the local banks they absorb but do so at lower returns for the capital engaged in these banks.

Pan African capital? Banks, currencies, and imperial power

ABSTRACT U.S. and Europe-based banks and international financial institutions including the IMF have been central to critical accounts of Africa’s place in global capitalism. And yet since 2008 these institutions have been in retreat on the continent, partially replaced by Pan African Banks. Putting ethnographic work with Africa-based finance professionals into dialogue with heterodox economic thinking on banks and currency sovereignty, I argue that we must not only analyze the geographic shift in where banks are headquartered and who owns them, but also generate empirical and theoretical shifts in what a bank is, what it does, and to what effect, especially in terms of the relationship between currencies, social violence, and imperial and racial power.

Opportunities and Challenges Of Cross-Border Banking: Focus On Pan-African Banks

There has been a remarkable increase of the regional banking operations across the African continent over the past two decades. This resulted from macroeconomic improvements and economic growth. As a result, African banks increased their geographical operations to emerge as regional groups holding a considerable market share compared to their historically predominant competitors. However, the literature on the pan-African banking industry to understand better this phenomenon is still scarce, which limits having a bigger and inclusive picture of all the key elements influencing this noteworthy growth. This research paper articulates a review based on previous academic research works, and highlights the most important opportunities that regional banks seized, as well as the challenges they faced in order to lead their cross-border banking operations successfully across the region.

Opportunities and Challenges Of Cross-Border Banking: Focus On Pan-African Banks

През последните две десетилетия се наблюдава забележително увеличение на регионалните банкови операции по целия африкански континент, което се дължи на подобряването на макроикономическите показатели и икономическия растеж. В резултат на това африканските банки увеличиха своите географски операции, за да се очертаят като регионални групи, притежаващи значителен пазарен дял в сравнение с превъзхождащите ги в исторически план конкуренти. Въпреки това все още няма достатъчно публикации относно пан-африканската банкова индустрия, която да обяснят по-добре това явление, а това от своя страна не позволява да се състави една по-обща и всеобхватна представа на всички ключови елементи, влияещи върху този забележителен ръст. Статията представя изследване, чиято цел е да обобщи всички съществуващи академични изследвания и да очертае ключовите възможности, от които са се възползвали регионалните банки, както и стоящите пред тях предизвикателства за успешно управление на трансграничните им банкови операции в региона.

Pan-African banks, banking interconnectivity: A new systemic risk measure in the WAEMU

This paper examines the existence of potential systemic risk in the banking sector of the West African Economic and Monetary Union (WAEMU) by using hand-collected bank-level data from all WAEMU countries for 2000–2017. One original aspect of our paper is the estimation of probabilities of default, in conjunction with the CIMDO method (Consistent Information Multivariate Density Optimizing) and the use of clustering techniques. We find that most of the banks have a very low probability of default, but there is a high joint probability of default for most pairs of banks. Therefore, there are seeds of systemic risk in the WAEMU: if the financial strength of large banking groups deteriorates, there could be contagion effects that could weaken the union. The use of quantile estimation has helped to determine banks’ characteristics that may explain the systemic risk.

How has the rise of Pan-African banks impacted bank stability in WAEMU?

We investigate the impact of the recent rise of Pan-African banks, which are indigenous African banks with cross-border networks, on banking sector stability within the West African Economic and Monetary Union (WAEMU). We contextualise this problem in terms of the long-standing unresolved controversy in the banking literature, between the competition-stability hypothesis and the competition-fragility hypothesis. We test the hypotheses using hand-collected bank-level data from all WAEMU countries for 2000–2017. We uncover new evidence that the increase in competition, engendered by the entry of Pan-African banks, is associated with an increase in banking stability as well as an increase in banking fragility – it all depends on the origin of banks in WAEMU. Specifically, the expansion of Pan-African banks into the WAEMU banking system is consistent with the competition-fragility hypothesis, while the presence of French banks in WAEMU supports both hypotheses. Overall, bank profit is the main mechanism through which competition is associated with an increase in banking fragility in WAEMU.

Measuring the Efficiency of Pan African Commercial Banks: An Application of Malmquist DEA Methods

Measuring the Efficiency of Pan African Commercial Banks: An Application of Malmquist DEA Methods

Capital, risk and profitability of WAEMU banks: Does bank ownership matter?

Abstract We investigate the simultaneous relationship among bank capital, risk and profitability, but also considering bank ownership and the emergence of Pan-African cross-border banks. We specify a simultaneous equation model and estimate it using hand-collected bank level data from all West African Economic and Monetary Union (WAEMU) countries for 2000–2014. We split the countries into lower middle-income (LMICs) and low-income (LICs) according to the World Bank classification. We uncover evidence that the sensitivity of bank profitability to an increase in capital ratio seems to be somewhat higher in LMICs (+0.10) than in LICs (+0.05). Moreover, we find that bank capital positions tend to comove positively with the business cycle in LICs, mimicking a key postulate of Basel III. After differentiating between cross-border Pan-African banks and foreign banks from outside the continent, we find that the overall effect of bank ownership on risk depends on the origin of banks (French versus Pan-African). These findings are robust to alternative estimation techniques and the use of competing measures of risk and profitability.

Leveraging local knowledge or global advantage: Cross border bank mergers and acquisitions in Africa

This paper examines global financial markets perception of value creation for banks from across the world initiating or expanding their operations on the African continent through mergers and acquisitions (M&As) over the period 2000–2018. Especially before and during the financial crisis, we document a strong advantage of Pan-African Banks (PABs) over domestic and emerging market banks and a slight advantage over advanced market banks. These results are in line with the hypothesis that PABs benefitted from both a global expertise and local knowledge advantage in the market for corporate control. We also document how retrenchment of global banks during and in the aftermath of the global financial crisis have created opportunities for PABs.

Drivers of Cross-Border Banking in Sub-Saharan Africa

Using data collected from pan-African banks’ (PABs), balance sheets and other sources (Orbis, Fitch), this study identifies some key patterns of cross-border investment in bank subsidiaries by key banking groups in sub-Saharan Africa (SSA) and discusses some of the determinants of this investment. Using a gravity model relating the annual value of a banking group’s investment in the net equity of its subsidiaries to a set of explanatory variables, the analysis finds that cross-border banking is in part driven by a search for yield, diversification, and expansion for strategic reasons.

Management of financial institutions in Africa: Emerging themes and future research agenda

ABSTRACTThe rise of the financial services sector in Africa over the last decade or so has been phenomenal, marked by significant advances in mobile money, and growing financial inclusion and profitability. However, there are significant gaps in the academic literature on the sector, as most recent studies have focused on the more technical aspects of economics, banking and finance, with little attention paid to the management of financial institutions, and the strategic behavior of financial services players. This special issue attempts to fill these gaps. In this introductory paper, we provide an overview of three important trends or thematic areas that the papers in the special issue address: the decline of foreign banks in Africa; the rise of pan-African banks; and how frugal innovation and fintech are shaping the future of financial services in Africa. We also outline three avenues for future research: historical perspectives on financial services; indigenous financial institutions; and mergers, acquisitions and strategic alliances.

Coping with Falling Oil Prices

This paper studies the impact of declining oil prices on banks in sub-Saharan African oil-exporting countries. Results indicate that banks respond differently to an oil shock depending on their ownership: (i) domestic banks are the most adversely impacted and experience a deterioration in asset quality and liquidity; (ii) foreign-owned banks are the most resilient as they are able to improve asset quality and attract deposits but at the same time, they decelerate credit growth; in contrast, (iii) Pan-African Banks help stabilize overall credit but large banks in that segment experience reduced asset quality. These differentiated results suggest a tradeoff between maintaining credit growth and safeguarding financial stability in an oil slump which could be addressed by both micro- and macroprudential policies.

Regional foreign banks and financial inclusion: Evidence from Africa

Regional foreign banks expanded quickly over the past decade in developing and emerging countries and have a growing influence in banking systems. We question whether the development of African regional foreign banks, also called Pan-African banks, influences financial inclusion of firms and households. To this end, we combine the World Bank Global Findex database and the World Bank Enterprise Surveys with a hand-collected database on the presence of regional foreign banks. We find that Pan-African banks presence increases firms’ access to credit and limited evidence that they favor financial access of the middle class by restoring confidence in banks. We suggest that this impact is related to the adoption of an aggressive strategy aiming at gaining market shares rather than through the exploitation of informational and technological advantages.

Political Dimension in Pan-African Cross-border Banking: An Inhibitor or Catalyst?

The emergence and the dominance of African banks in Africa have been touted as one of the popular mechanisms for financial development leading to a concept termed as Pan-African cross-border banking. African Banks have become dominant in the African market as opposed to European colonial banks substantially increasing their geographic footprints on the continent. African banks have become economically significant beyond their home countries and of systematic importance in a number of jurisdictions. This systematically examined the influence of the political environment on Pan-African cross-border banking using Kenya Commercial bank as a case study.Interpretive research paradigm guided the study seeking using qualitative data by interviewing employees, managers, and policymakers from the three subsidiaries of Kenya Commercial Bank; Uganda, Rwanda, and Burundi. This was further supported by secondary data collected from journal articles and reports from the Kenya Commercial Bank.The study established that political environment plays an important role in influencing Pan-African cross-border banking either through catalysing or inhibiting. Despite effort integration by African Union, regional unions like East African Community there still areas for improvement. In order to enhance Pan-African cross-border banking, there has to be systematically management of political environment which was distorted by history, ideologies, different political systems, different regulatory frameworks between the subsidiaries and home countries. This will further enhance the significance of Pan-African banks African cross-border banks enhancing economic development within Africa.

Coping with Falling Oil Prices: The Different Fortunes of African Banks

This paper studies the impact of declining oil prices on banks in sub-Saharan African oil-exporting countries. Results indicate that banks respond differently to an oil shock depending on their ownership: (i) domestic banks are the most adversely impacted and experience a deterioration in asset quality and liquidity; (ii) foreign-owned banks are the most resilient as they are able to improve asset quality and attract deposits but at the same time, they decelerate credit growth; in contrast, (iii) Pan-African Banks help stabilize overall credit but large banks in that segment experience reduced asset quality. These differentiated results suggest a tradeoff between maintaining credit growth and safeguarding financial stability in an oil slump which could be addressed by both micro- and macroprudential policies.

Cross-Border Banking, International Financial Flows and Financial Deepening

The study evaluates the significance of cross-border banking and international financial flows in enhancing financial deepening in the Southern African Development Community (SADC), including isolating the impact of regional, or pan-African, banks. The study also attempts to estimate the responses of the domestic financial sector to shocks in foreign banks and financial flows. Dynamic panel and general method of moments (GMM) estimations established that cross-border bank slows down development of domestic financial markets, although there are traces of positive effects in some measures. Pan-African Banks support credit development in domestic markets although diluting profitability. Impulse response and variance decomposition shows a largely negative reaction of domestic financial markets to shocks in foreign banks and financial flows in the short run, with the reaction turning positive in the long run. Indicatively, the results are demonstrating limited, but positive, financial spill-overs effects of foreign banks on financial development of other SADC countries. PanAfrican Banks are still to have a significant impact in the SADC countries.

Do Pan-African banks have the best of both worlds?

There has been a large expansion of foreign banks in Africa over the last two decades, with Pan-African banks playing a key role in this phenomenon. This paper questions if this development is beneficial for bank efficiency in African countries by investigating if Pan-African banks are more efficient than other types of foreign and domestic banks. We analyse the relation between ownership type and bank efficiency on a large sample of African banks covering 39 African countries over the period 2002–2015. We find that Pan-African banks are the most efficient banks in the African banking industries. We explain this finding with the fact that these banks combine the best of both worlds: they have the global advantages of foreign banks and the home field advantages of domestic banks. They are therefore able to be more efficient than both foreign banks from developed countries and domestic banks. This suggests that favouring the entry of Pan-African banks would be beneficial to bank efficiency in Africa.

Cyclicality of lending in Africa: The influence of bank ownership

Ownership structure of banks has dramatically changed over the past two decades in African countries with privatization and foreign bank entry, including the expansion of Pan-African banks. The objective of this paper is to investigate how bank ownership influences cyclicality of lending in Africa. We are then able to assess how changes in bank ownership influence the economy. To this end, we measure the sensitivity of bank loan growth to GDP per capita growth of the host country with dynamic GMM estimations. We use panel data from 190 commercial banks covering 20 African countries spanning the period from 2002 to 2015. We find that lending of African banks is procyclical for all types of banks. However, we observe that Pan-African banks are the least procyclical banks, while no significant difference in procyclicality is observed between state-owned banks, domestic private banks, and other foreign banks. In addition, we find evidence that foreign banks are influenced by GDP per capita growth of their home country. Therefore, our findings support the view that the expansion of Pan-African banks contributes to reduce cyclicality of lending. However, foreign bank entry can enhance the transmission of external shocks.

Pan-African Banks - Opportunities and Challenges for Cross-Border Oversight

There has been a rapid expansion of pan-African banks (PABs) in recent years, with seven major PABs having a presence in at least ten African countries: three of these are headquartered in Morocco, two in Togo, and one each in Nigeria and South Africa. Additional banks, primarily from Kenya, Nigeria, and South Africa, have a regional presence with operations in at least five countries. PABs have a systemic presence in around 36 countries. Overall, the PABs are now much more important in Africa than the long-established European and American banks.