Finance matters for growth – also in Africa
BDI
BEN
BWA
CAF
CMR
COG
GHAGMB
GNB KEN
LSO
MLI
MOZ
MRT
MUS
MWI
NER
RWA
SDN
SEN
SLE
SWZ
TGO
UGA
ZAF
ZMB
ZWE
-3
-2
-1
0
1
2
3
4
5
Ave
rage
GD
P G
row
th 1
980
-20
03 (
log
resi
dual
)
-2 -1 0 1 2
Private Credit/GDP 1980-2003 (log residual)
All Other Regions Sub-Saharan Africa
Residual Trendline
Sample size: 99 countries
Finance is also pro-poor
BWA
BFA
BDI
CMR
CIV
ETH
GMB
GHA
KEN
LSO
MDG
MWI
MLIMRT
NER
NGA
RWA
SEN
ZAFUGA
ZMB
ZWE
-0.20
-0.10
0.00
0.10
0.20R
esid
uals
-2.00 -1.00 0.00 1.00 2.00
Residuals
Sub-Saharan Africa
All Other Regions
Sample size: 68 countriesTime period: Source:
Africa’s financial systems are small – in relative…
0.00
1.00
2.00
3.00
4.00
Sub-Saharan Africa
Other
Sample size: 161 countries
…although there is also variation within the region
< 20%
20-30%
30-40%
> 40%
Sub-Saharan Africa: Access to Finance by Households
Banking is expensive – as can be observed in net interest margins…
0.00 0.05 0.10 0.15netintmargin
Sub-Saharan Africa
South Asia
Middle East & North Africa
Latin America & Caribbean
High-income
Europe & Central Asia
East Asia & Pacific
Sample size: 133 countries
Regional Distributions
… and costly…
0.00 0.05 0.10 0.15overhead
Sub-Saharan Africa
South Asia
Middle East & North Africa
Latin America & Caribbean
High-income
Europe & Central Asia
East Asia & Pacific
Sample size: 135 countries
Regional Distributions
.. but still profitable
-0.20 0.00 0.20 0.40roe
Sub-Saharan Africa
South Asia
Middle East & North Africa
Latin America & Caribbean
High-income
Europe & Central Asia
East Asia & Pacific
Sample size: 136 countries
Regional Distributions
Banking is also expensive for customers…
0.00
20.00
40.00
60.00
80.00
Sub-Saharan Africa
Other
Sample size: 88 countries
…with negative repercussions for access
Share of population unable to afford checking account fees
0 20 40 60 80 100
South AfricaGhana
MadagascarChile
CameroonNepal
SwazilandKenya
Sierra LeoneUgandaMalawi
Percent
Documentation requirements are another barrier
0.0
1.0
2.0
3.0
4.0
5.0
Sub-Saharan Africa
Rest of the World
Sample size: 88 countriesTime period: Source:
Capital markets are even less developed
0.00
1.00
2.00
3.00
Sub-Saharan Africa
Other
Sample size: 101 countries
Hope is in the air…
0%
5%
10%
15%
20%
25%
30%
35%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
year
Liquid Liabilities / GDP (SSA) Bank Deposits / GDP (SSA Private Credit / GDP (SSA)
Finance is more in line with economic development than before
ALBARG
AUSAUT
BEL
BGD
BGR
BLZBOLBRA
CANCHE
CHL
COL
CRI
DEU
DNK
DOM
DZAECU
EGY
ESP
FIN
FRA
GBR
GRC
GTM
GUY
HKG
HNDHUN
IDN
IND
IRL
IRN ITAJOR
JPNKOR
LAO
LKA
LUX
LVA
MACMAR
MEX
MYS
NLD
NZL
PAK
PAN
PERPHL
PNG
PRT
PRYSLV
SWE
THA
TTOTUN
URY
USA
VEN
BENBFA
BWA
CIVCMR
ETH
GABGNB
KEN
LSOMDG
MLIMOZ
MUS
MWI SENSYC
TCD
TGO
ZAF
ZMB
-1.00
-0.50
0.00
0.50
1.00
1.50
Pri
vate
Cre
dit t
o G
DP
/infla
tion
resi
dual
-4.00 -2.00 0.00 2.00GDP per capita/inflation residual
Sub-Saharan AfricaOtherFitted values
Progress has been widespread (1)
0.15
0.20
0.25
0.30
0.35
Liqu
id L
iabi
litie
s / G
DP
in S
SA
1995 1997 1999 2001 2003 2005 20072008
75 %ile
50 %ile25 %ile
Progress has been widespread (2)
0.05
0.10
0.15
0.20
Pri
vate
Cre
dit /
GD
P in
SS
A
1995 1997 1999 2001 2003 2005 20072008
75 %ile
50 %ile25 %ile
Africa in the current crisis
No direct impact No toxic assets Little if any household lending Not as closely integrated
Indirect, second-round effects 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: Drying up of global capital funds
No alternative to globalization in most LICs, but: More emphasis on domestic resource mobilization More emphasis on regional integration
Foreign banks across the developing world
Bank ownership (Africa)
Equally shared
19%
Mainly local21%
Mainly govt7%
Mainly foreign
46%
Foreign+Govt7%
Bank ownership (Rest of Developing World)
Foreign+Govt9%
Mainly foreign
29%
Mainly govt12%
Mainly local25%
Equally shared
25%
Regulatory reform in the North -
the downsides of heavy regulatory hand Rent seeking, corruption, political capture Killing off markets – caveat emptor Negative repercussions for access to finance Consumer protection vs. systemic risk
Pyramids vs. derivative markets
Role of government – has the paradigm shifted again? 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 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?
Role of credit rating agencies Hmmm….
Role of consumer protection, financial literacy, disclosure
Cooperation for large multi-national banks MoUs??? Colleges of supervisors??
Can we apply Coase theorem? Incentives!!! Resources!! The role of IFIs
Long: ring-fence, short: branches Contingency planning Old vs. new foreign banks
Cooperation among LICs
Regional integration
Unfulfilled potential Over-ambition might be a problem – focus on
subregions, different speeds Benefits from technical cooperation Harmonizing regulatory frameworks
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
Even in these times… Fostering financial development and access is important In most countries, it is central bank that is natural champion
Looking beyond the focus on tax havens and AML/CFT 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
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Europe & CentralAsia
High income Latin America &Caribbean
South Asia East Asia & Pacific Sub-Saharan Africa Middle East & NorthAfrica
Loan-deposit ratio
Over-leveraged or liquid (2)Loan-deposit ratio
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
High income: OECD Upper middle income High income: nonOECD Lower middle income Low income
Loan-deposit ratio
Financial sector policies in developing countries – looking ahead Financial innovation
Use of technology Competition from non-banks
Trade-off deepening/broadening and stability One size does not fit all Take trade-off into account in regulation
Focus on clients, less on institutions Financial service provision Consumer protection, transparency, over-indebtedness
Learn from each other
Who does what?
Looking beyond G20 Role for WB to represent non-G20 Complementary role for bilaterals in G20 (DfiD, BMZ,AFD
etc.) What kind of assistance?
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