is in this light that African banks are expected to play pivotal roles in wealth creation for sustainable development on the continent.
Traditionally, banks have always been noted for the intermediary role they play in facilitating economic exchanges, through deposit mobilization and credit provisioning. But internal and external factors have attenuated the capacities of the banks to fulfill their roles in the economies where they operate, with bank failures already part of the experiences in several Sub Saharan African countries.
Recent study of bank failure in Tanzania shows how high rate of non-performing assets (NPAs) was responsible for the failure of the National Bank of Commerce (NBC). That in itself was a symptom and not the disease. The study linked government and political interventions and non-use of prudent credit scoring methods to the NBC failure.
However, other studies have itemized both internal and external causes of bank failures, which African economies can ill-afford as a cyclical phenomenon. Internal factors leading to bank failures include reckless lending, corruption, non-use of prudent classification of risk assessment methods, fraud, management deficiencies and weak corporate governance.
External dynamics of banking sustainability have been known to include deregulation without strong regulatory mechanisms, lack of information among bank customers, de-marketing other banks by peddling (malicious) rumour about their health, homogeneity of the banking business and connections among banks are noted as causes of bank failure. Certainly, there are overlaps in these broad classifications.
The challenges of financial system soundness are enormous, but it must be surmounted by all stakeholders. According to Christo Wiese, Registrar of Banks, South African Reserve Bank, a pretty well developed financial system like South Africas still grapples with unsoundness. The intervention of the Saambou Bank Limited placed under curatorship and liquidity problems at BoE Bank Limited have renewed focus on financial-system soundness in Africas most developed banking environment.
To forge ahead, there is a need for adherence to banking best practices by professionals complemented by sound regulatory measures. In the last two years, it has been seen how sound regulatory policies can re-shape the financial system in a country like Nigeria, which had had many instances of bank failures. Two years into the banking industry consolidation programme enunciated by the Central Bank of Nigeria (CBN) under the visionary leadership of Prof. Soludo, Nigerian banks have not only emerged bigger, healthier and more competitive, but are now playing critical roles in sub-regional economic integration.
Intercontinental Bank Plc
, Guaranty Trust Bank Plc and Zenith Bank Plc are some of Nigerian banks which have opened full fledged subsidiaries in countries on the West Coast of Africa. For investors in these banks as well, the last two years have brought about fabulous returns, as one after the other, the banks have turned in good results, concretized in good dividend payout and bonus issues. Intercontinental Bank offers investors another chance of becoming a part of the success story of its fast growing franchise through a combination of public offer and rights issue which will run till early November.
As contributory measures to promoting sustainable development on the continent, African banks should brace up with technology, customized solution deployment, social and environmental challenges and providing support for growing small businesses. These issues are briefly discussed in the following sections with closing remarks.
In spite of additional operational risks posed by the use of technology in the delivery of banking services to the customers, it provides the cheapest and most efficient way of getting banking products and services to the people. In this regard, smartcard technology leads the way in helping to platform banking services to existing customers and in reaching the un-banked communities.
While non-availability of infrastructure complimentary to delivery of card based products remains real, there are already new innovations that are filling the infrastructure gaps. For instance, the new chip-based technology means that being online is no longer a prerequisite to securely transact or pay. An off-line system whereby an amount is pre-loaded and pre-authorized on a chip limits the risk element for both the merchant and bank.
"Smartcards are an important channel for banking in environments where the communication infrastructure is deficient," says Martin Pienaar, GM, Electronic Banking at Nedcor Bank, South Africa. In a chat with Jide Akintunde, Managing Editor / CEO, Financialnigeria.com
at the 2006 annual meeting of the IMF and World Bank in Singapore, Mr. Emeka Onwuka, CEO, Diamond Bank Plc
, revealed his banks drive to take banking to rural Nigerians with the use of off-line technology. This is the next stage for the bank which has achieved the fastest paced integration during the banking consolidation exercise that took place between mid-2004 and December 2005.
In the last one year, there has been a geometrical increase in the deployment of ATMs and electronic payment systems in Nigeria, although this is coming after half a decade of the launch of e-banking in Ghana through Orbicom. Benefits derivable from this can profoundly influence the shape of things in the future, in socio political and economic spheres.
In Nigeria, politico economic negotiations have been stifled in the past, because workers often had to abandon work to rule calls when they run out of cash with teller services shut in the banks. With ATMs, the banking public can access their cash any time, and this potentially can help sustain non-violent negotiation like industrial action. But the realization of this can even help prevent breakdown in trade negotiations such that they dont lead to industrial actions.
Customized Financial and Investment Solution
It will be a step in the direction of sustainable development if banks in Africa design their financial and investment solutions to meet specific needs of their clients. One need that is general is housing. The mortgage business is underdeveloped on the continent. This has created a yawning gap between the housing need of the working class and the available housing.
With more SSA countries achieving emerging market status, it is expected that consumer spending will increase dramatically over the next couple of years. It will be both socially responsible and profitable that consumer banking products are deepened by the banks.
According to Dr. Osita Ogbu, Economic Adviser to President Obasanjo, since the banking consolidation programme, increased consumer spending is steadily accounting for Nigerias GDP growth. The middle class is been restored. Syke Bank Plc, for instance, has two consumer products targeted at asset acquisition by the working class. It is also interesting that Financialnigeria.com provides online and e-mail marketing for these and other type of value added financial and investment solutions.
Environmental and Social Responsibility
As part of recommendations in a study by United Nations Environmental Protection Financial Initiative (UNEP FI) and African Institute of Corporate Citizenship (AICC), African financial institutions are encouraged to:
develop a strong corporate social responsibility strategy that is integrated and embedded across the business practices of the organisation and supply chain
sign up to and build on a range of internationally and locally recognized codes and standards
provide access to finance for the development of environmentally beneficial technologies, such as renewable energy projects or energy efficient products
afford greater consideration to sustainability and environmental risk issues in the emerging markets by rating agencies.
SME and Microfinance
This is the biggest area where there is much more to be done. As already well acknowledged, small and medium scale businesses are the engine of growth of any economy. Access to finance has placed high hurdles in the path of many entrepreneurs on the continent. It is very important that banks in partnership with governmental and civil society find the right formulae to unlock the caged genius in many African entrepreneurs.
Beyond financing, capacity development programme should be developed for the entrepreneurs as an ancillary service. This will create a win-win situation for all stakeholders and will present a real opportunity to actualize the economic potentials of the emerging African economies.