African banks’ regulation and supervision is improving, Says Moody’s

LAGOS (Capital Markets in Africa) – While increased regulation and improved supervision have strengthened the financial stability of African banks, progress has not been uniform and gaps remain, especially in the areas of enforcement and cross-border coordination, Moody’s Investors Service said in a report today.

The report, entitled “Banks — Africa: Gaps in Banking Regulation and Supervision Are Progressively Being Addressed”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

The report says African regulators have focused on strengthening corporate governance rules, updated banking laws to extend regulatory and supervisory powers, enhanced their stress testing capabilities, while macro-prudential tools are increasingly being deployed to mitigate systemic risks.

Despite the progress however, further improvements are warranted in some areas. For example, South Africa is the only African country to have implemented Basel III. Implementing Basel III would be a catalyst for improved capital and liquidity management and internal risk management procedures across the continent.

Similarly, plans for resolution regimes in Africa are still evolving and the implementation of resolution frameworks trails the rest of the world. “Evolving resolution regimes mean the cost of any systemic crisis could be substantial since many countries are unable to identify and deal with rising banking risks promptly,” said Constantinos Kypreos, a Moody’s Vice President — Senior Credit Officer and co-author of the report.

African countries have broadly adopted international standards on anti-money laundering and counter-terrorism financing, but compliance is still evolving. Avoiding sanctions is important for most African banks, especially in partly-dollarized systems where banks require US or other foreign banks to clear dollar transactions.