Which Nigerian bank is in South Africa
The African banking market at a glance
If the exporter would like to “supply” his buyer with suitable financing, direct lending by international banks to companies in Africa is seldom possible due to the local risks. International banks therefore often work together with local banks. The development of the banking market in Africa varies greatly from region to region and is influenced by the economic and political situation in the respective countries.
By Sylvia Sedlacek, Vice President Financial Institutions, KfW IPEX-Bank
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Sufficiently well-developed financial centers have developed in particular in commodity-exporting countries such as Nigeria and Angola, as well as in some Maghreb countries and economically diversified economies such as South Africa.
South Africa dominates the financial center
The South African banking market has high standards. Most banks are well or very well capitalized and have robust balance sheets. The financial sector is very well regulated and monitored by an independent central bank. The five largest banks hold approximately 90% of the total assets.
South African banks play an important role in the financing of European-South African trade and the financing of subsidiaries and branches of European companies in South Africa and Sub-Saharan Africa. Due to the good creditworthiness, beneficiaries of letters of credit generally forego confirmation of the payment obligations of the South African banks by western banks, which reduces the costs of processing the letter of credit for the beneficiary.
Nigeria's banks under pressure
In Nigeria, on the other hand, the difficult macroeconomic situation is now also affecting the banking sector. Although the sector underwent a complete restructuring in 2009 and 2010 following a banking crisis, the now difficult economic environment in connection with the collapse in oil prices has resulted in significant drops in profits for the major banks. One of the reasons for this is the high credit exposure of the institutes in the oil sector. Accordingly, the credit quality has already visibly deteriorated. The impaired liquidity situation is particularly critical: Due to the increasingly restrictive foreign exchange management, Nigerian banks are currently having problems meeting their foreign currency needs. As a negative consequence, they often serve letters of credit late. These effects are less noticeable for the exporter, as they are usually secured by confirmations from Western European banks.
Against this background, however, foreign banks have become increasingly reluctant to confirm new letters of credit to be opened, especially those that are not opened by so-called “tier one” banks. Although the central bank recently made a larger sum of US dollars available to the banking sector so that it can meet outside liabilities, it remains to be seen whether this form of willingness to provide support should be seen as a one-off action or whether and in what form it will continue to rely on it in the future can be.
The current burdens on the banking sector caused by the oil price crisis are not limited to close links with the oil sector. A number of Nigerian banks have also taken out more US dollar loans in recent years, making them more vulnerable to exchange rate-related risks. The central bank has now limited the debt in this way. This further reduces the ECA business, which was previously only found opportunistically.
Angola carries currency risks
In Angola, the immediate risks of the oil price shock are low given the low volume of lending to the oil sector (around 2% of total lending). However, since an estimated one-third of deposits and loans are denominated in foreign currency, the devaluation of the kwanza harbors considerable risks.
Meanwhile, the sharp drop in oil prices is causing a drastic drop in foreign exchange income. This is why the capital flow management system that has now been introduced in Angola makes international banking transactions more difficult: the central bank allocates foreign currency in weekly auctions. However, the allocated amounts are currently not sufficient to fully service the foreign currency liabilities due on the respective dates. This leads to massive delays in payments to be made by Angolan banks in foreign currency.
Although Angola's banking sector has expanded rapidly in recent years and has made Luanda an important financial center in sub-Saharan Africa, the industry is still very underdeveloped and is considered to be one of the greatest obstacles to economic diversification in the country.
Banks in the Maghreb paint a mixed picture
The banks in Morocco are well positioned in the Maghreb region. With a ratio of bank assets to GDP of 140%, Morocco has a large banking sector. However, the banks' market penetration is weak and the product range is limited. Private banks have a market share of 84%. The three largest Moroccan banks Banque Centrale Populaire, BMCE Bank and Attijariwafa account for two thirds of the total assets. Over the past few years, these companies have expanded their business to include West Africa in particular. For these institutions, loans in Africa now account for between 10% and 27% of the outstanding loan amount. Banking supervision is effective and independent and is the responsibility of the Moroccan Central Bank (Bank Al Maghrib - BAM) and two regulatory authorities subordinate to BAM. The prescribed regulations correspond to international standards.
The Algerian financial sector, on the other hand, remains underdeveloped despite growth in recent years. With a total of six state banks holding 87% of bank deposits, the banking sector is state-dominated. The rest is spread over 14 private banks, most of which are foreign owned (subsidiaries of European and US banks). Over 50% of bank loans go to the public sector.
The Algerian financial sector is hardly internationally integrated and therefore largely isolated from the turbulence in the international markets. The banks also have sufficient equity capital in relation to their risk-bearing assets. As a result of the drop in the oil price, deposits and thus liquidity in the banking sector have recently been lost. The independence of the Algerian central bank as a regulator can be called into question, since the state is at the same time the largest lender and, through state-owned companies, the largest borrower.
Pan-African banks interesting
In the current difficult environment in particular, the role of multilateral African and Pan-African banks, such as the African Export-Import Bank (Afreximbank), The Eastern and Southern Trade Development Bank (PTA-BANK), the Ecobank Group, the Africa Finance Cooperation ( AFC) and recently also the Banque Ouest Africaine de Development (BOAD).
Due to their international and African shareholder structures and based on their business strategies, these institutions are in a position to take on project risks in the markets of their shareholder countries, which the banking market of the respective countries may not (or can no longer) represent.
As multilateral development institutions, these banks (with the exception of the Ecobank Group) enjoy preferred creditor status, which enables the recipients of loans from these institutions to have preferential access to foreign currencies in the event of foreign currency restrictions in the borrowing countries receive.
The financing of export transactions with the associated hedging of payment risks will remain decisive in most African countries for the establishment of delivery transactions in the medium term. The importance of the pan-African banks is expected to continue to grow.
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