Transcript Supervision of banking sectors in LICs – after 9/14

The agenda for financial sector
reform in Sub-Saharan Africa
Thorsten Beck
Finance matters for growth – also in
Africa
5
BWA
4
3
2
MUS
UGA
SDN
SWZ
1
MOZ
GMB
LSO ZAF ZWE
MRT
SEN
CMR
MLI
TGO
BEN
GHA
0
-1
RWA
COG
GNB
MWI
SLE
-2
KEN
ZMB
NER
BDI
CAF
-3
-2
-1
0
1
Private Credit/GDP 1980-2003 (log residual)
All Other Regions
Residual Trendline
Sample size: 99 countries
2
Sub-Saharan Africa
Finance is also pro-poor
0.20
0.10
GMB
BWA
Residuals
LSO
RWA
GHA
CIV
MLI
BDI
NGA
UGA
0.00
ZMB
BFA
MRT
ZAF
ETH
MDG
CMR
NER
MWI
SEN
ZWE
-0.10
KEN
-0.20
-2.00
-1.00
0.00
Residuals
1.00
2.00
Sub-Saharan Africa
All Other Regions
Sample size: 68 countries
Time period:
Source:
Africa’s financial systems are small – in relative…
4.00
3.00
2.00
1.00
0.00
Sub-Saharan Africa
Other
Sample size: 161 countries
…and absolute terms
15.00
10.00
5.00
0.00
Sub-Saharan Africa
Other
Sample size: 133 countries
Access to Financial Services is limited…
…although there is also variation within the region
Sub-Saharan Africa: Access to Finance by Households
< 20%
20-30%
30-40%
> 40%
Banking is expensive – as can be observed in
net interest margins…
Regional Distributions
East Asia & Pacific
Europe & Central Asia
High-income
Latin America & Caribbean
Middle East & North Africa
South Asia
Sub-Saharan Africa
0.00
0.05
0.10
netintmargin
Sample size: 133 countries
0.15
… and costly…
Regional Distributions
East Asia & Pacific
Europe & Central Asia
High-income
Latin America & Caribbean
Middle East & North Africa
South Asia
Sub-Saharan Africa
0.00
0.05
0.10
overhead
Sample size: 135 countries
0.15
.. but still profitable
Regional Distributions
East Asia & Pacific
Europe & Central Asia
High-income
Latin America & Caribbean
Middle East & North Africa
South Asia
Sub-Saharan Africa
-0.20
0.00
0.20
roe
Sample size: 136 countries
0.40
Banking is also expensive for customers…
80.00
60.00
40.00
20.00
0.00
Sub-Saharan Africa
Other
Sample size: 88 countries
…with negative repercussions
for access
Share of population unable to afford checking account fees
Malawi
Uganda
Sierra Leone
Kenya
Swaziland
Nepal
Cameroon
Chile
Madagascar
Ghana
South Africa
0
20
40
60
Percent
80
100
Documentation requirements are another
barrier
5.0
4.0
3.0
2.0
1.0
0.0
Sub-Saharan Africa
Rest of the World
Sample size: 88 countries
Time period:
Source:
Capital markets are even less developed
3.00
2.00
1.00
0.00
Sub-Saharan Africa
Other
Sample size: 101 countries
Hope is in the air…
Finance is more in line with economic development
than before
1.50
1.00
0.50
0.00
MWI
-0.50
GNB
TGO
MLI
BEN
BFA
USA
IRL
DNK
GBR
NLD
ZAF
ESP
CHE LUX
PRT
CAN
NZL
HKG
SWE
LVA AUS
AUT
DEU
JOR MYS
KOR FRA
IRN
MUS
ITA
GUY
CHL
JPN
LKA
GRC
PAN
BELFIN
THA
VEN
HUN
BGR
ETH
EGY
CRI
TUN
HND
BGD
IND MAR BOL
BLZ
TTO
KEN
MAC
SLV
COLBRA
GTM
PAK
SYC URY
ZMB
MDG
PRY
IDN
ARG
SEN LSO
DOM BWA
PHL ALB
MEX
ECU
MOZ
GAB
DZA
PER
LAO
PNG
CIV
CMR
-1.00
TCD
-4.00
-2.00
0.00
GDP per capita/inflation residual
2.00
Sub-Saharan Africa
Other
Fitted values
Progress has been widespread (1)
0.35
0.30
75 %ile
50 %ile
25 %ile
0.25
0.20
0.15
1995
1997
1999
2001
2003
2005
20072008
Progress has been widespread (2)
0.20
0.15
75 %ile
50 %ile
25 %ile
0.10
0.05
1995
1997
1999
2001
2003
2005
20072008
Africa in the current crisis
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No direct impact
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No toxic assets
Little if any household lending
Not as closely integrated
Indirect, second-round effects
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Parent banks – not as much as feared
Real sector linkages (commodity and non-commodity exporters)
Remittance flows
Higher government financing needs
International capital flows
Parent banks at risk? Not the case
Reforms of regulatory frameworks
Working in a new global environment

Globalization has brought many advantages,
but also:
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
Drying up of global capital funds
No alternative to globalization in most LICs,
but:

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More emphasis on domestic resource mobilization
More emphasis on regional integration
Foreign banks across the developing world
Bank ownership (Rest of Developing World)
Bank ownership (Africa)
Mainly local
21%
Equally
shared
19%
Foreign+Govt
7%
Mainly govt
7%
Mainly local
25%
Mainly govt
12%
Mainly
foreign
29%
Mainly
foreign
46%
Equally
shared
25%
Foreign+Govt
9%
Regulatory reform in the North the downsides of heavy regulatory hand
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Rent seeking, corruption, political capture
Killing off markets – caveat emptor
Negative repercussions for access to finance
Consumer protection vs. systemic risk
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Pyramids vs. derivative markets
Role of government – has the paradigm
shifted again?
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Role of markets vs. government in the current
crisis
Role of government in crisis resolution vs.
permanent role of government in financial
sector
Activism vs. modernism
Regulatory lessons from the big crisis from Pittsburgh to Lilongwe
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Macro-prudential supervision
 Do LIC supervisors have the necessary information
 Pro-cyclical capital regulation? Benchmark in LICs?
Boundaries of regulation
 Heavy regulatory hand called for?
 Benefits of securitization
 Restrictions on certain activities
Strengthening prudential regulation
 LICs typically more conservative anyway

How much information can LIC supervisors get and process?
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Role of credit rating agencies
 Hmmm….
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Role of consumer protection, financial literacy, disclosure
Cooperation for large multi-national banks
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MoUs??? Colleges of supervisors??
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Can we apply Coase theorem?
Incentives!!! Resources!!
The role of IFIs
Long: ring-fence, short: branches
Contingency planning
Old vs. new foreign banks
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Cooperation among LICs
Regional integration
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Unfulfilled potential
Over-ambition might be a problem – focus on
subregions, different speeds
Benefits from technical cooperation
Harmonizing regulatory frameworks
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Branches instead of subsidiaries
Reap benefits of scale economies
Important: adjust financial safety net accordingly (see
problems in Europe)
Intra-regional capital account liberalization
Looking beyond stability
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Even in these times…
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Looking beyond the focus on tax havens and
AML/CFT
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Fostering financial development and access is important
In most countries, it is central bank that is natural champion
Risk-based approach to not undermine access to financial
services
The current crisis underlines the necessity for
fundamental reforms in financial infrastructure as
period of “cheap money” is over
Over-leveraged or liquid (1)
Loan-deposit ratio
1.4
1.2
1
0.8
Loan-deposit ratio
0.6
0.4
0.2
0
Europe & Central
Asia
High income
Latin America &
Caribbean
South Asia
East Asia & Pacific
Sub-Saharan Africa Middle East & North
Africa
Over-leveraged or liquid (2)
Loan-deposit ratio
1.6
1.4
1.2
1
0.8
Loan-deposit ratio
0.6
0.4
0.2
0
High income: OECD
Upper middle income
High income: nonOECD
Lower middle income
Low income
Financial sector policies in developing
countries – looking ahead
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Financial innovation
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Trade-off deepening/broadening and stability
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One size does not fit all
Take trade-off into account in regulation
Focus on clients, less on institutions
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Use of technology
Competition from non-banks
Financial service provision
Consumer protection, transparency, over-indebtedness
Learn from each other
Who does what?
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Looking beyond G20
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Role for WB to represent non-G20
Complementary role for bilaterals in G20 (DfiD, BMZ,AFD
etc.)
What kind of assistance?
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Look beyond sub-sectoral support
Linking diagnostics (FSAP – new model?) with technical
assistance
Move beyond (away?) from international standards
Focus more on big-picture financial sector development
policies