Banks in Africa still have liquidity and risk gaps - Moody's

Jan 11 2017 05:31
Liesl Peyper

Cape Town - Although banks in Africa have done a lot to improve regulation and supervision that have strengthened their financial stability, progress has not been uniform and serious gaps remain, said Moody’s Investor Services in a report on Tuesday. 

The report said African banking regulators have strengthened corporate governance rules, updated banking laws and implemented measures to mitigate risk. 

Significant progress has also been made in the areas of enforcement and cross-border coordination, Moody’s said. 

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 – the reform measures, developed by the Basel Committee on Banking Supervision to strengthen the regulation, supervision and risk management of the banking sector.

READ: SA banks remain well capitalised - Treasury 

“Implementing Basel III would be a catalyst for improved capital and liquidity management and internal risk management procedures across the continent.” Moody’s said. 

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, senior credit officer at Moody’s 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-dollarised systems where banks require US or other foreign banks to clear dollar transactions, Moody’s said. 

South Africa, for example, could face a public rebuke from the Financial Action Task Force (FATF) when the body meets in February this year for failing to sign into law amendments to the Financial Intelligence Centre Act.

In June 2016, the FATF - an international body that monitors compliance with anti-terrorism and anti money-laundering regulations - gave South Africa a deadline extension from September to February to finalise the FIC Bill – a target the country is unlikely to meet, after President Jacob Zuma had referred the bill back to Parliament in November last year, citing constitutional reservations. 

READ: SA faces public rebuke over FIC Bill delay

At a meeting of Parliament’s standing finance committee meeting late last year, it was decided that public hearings will be hosted on January 24 to get input from stakeholders regarding the constitutional reservations aspect of the bill.

South Africa’s banking sector has expressed concern over Zuma’s decision to refer the FIC Amendment Bill back to Parliament, warning that the delay in ratifying the legislation could tarnish South African banks’ relationship with the international banking community. 

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