The International Monetary Fund (IMF) has warned that the rapid expansion of South African banks into other parts of the continent may increase risk to the financial sector, the local media report on Wednesday.
The private BusinessDay newspaper reported that as South African banks expand to the rest of Africa in search of growth, other countries tend to have weak rules for money laundering and combating the financing of terrorism, thereby posing greater risk.
The IMF, after the completion of an extensive assessment of South Africa’s financial system, noted that banks operating in the rest of Africa might incur extra costs due to the less developed infrastructure on the continent.
In addition, their information technology platforms might not be able to cope with increased volumes from their African businesses.
As a member of the Group of 20, South Africa agrees to this IMF Financial Sector Assessment Programme that is carried out every five years.
The assessment is intended to help countries identify risks to the financial system and implement policies to deal with financial shocks and contagion.
IMF sent a large team to South Africa from April to June to evaluate the financial sector, which included stress-testing major banks and insurers.
South Africa’s four largest banks – FirstRand, Standard Bank, Barclays Africa Group and Nedbank – have all put emphasis on growing their operations in the rest of Africa, as it offers higher growth rates than their home market.
South Africa is expecting a growth of about 1.4% for this year, according to the IMF’s latest World Economic Outlook.
In contrast, the IMF predicts sub-Saharan Africa’s economy will grow by 5.1% for this year and 5.8 % next year. This makes Africa an attractive growth market for South Africa’s major banks.
Standard Bank is the largest bank in Africa by assets, and operates in 20 countries, while Barclays Africa Group has a presence in 12.
FirstRand, through RMB, also operates extensively across the continent. Nedbank acquired a 20% stake in Pan-African banking group Ecobank Transnational in October, giving it access to the bank’s operations in 36 countries.
The bank also took a 36.4% stake in Banco Unico in Mozambique this year.
The IMF warned that for South African banks, “acquiring, or entering into partnerships with banks in Africa with poor credit quality or weak risk practices could result in capital losses to the group”.
According to the IMF report, South Africa’s four largest banks have 46 foreign subsidiaries, of which 39 are in Africa.
The size of some of the subsidiaries is significant in some of South Africa’s neighbouring countries, including Lesotho, Namibia and Swaziland.
The banks also have a sizable presence in Botswana, Seychelles, Uganda and Zambia.
Nonetheless, the banks’ combined African exposure accounts for only 2% of banking assets, while most of South Africa’s banks’ assets are domestic.
