Despite advances in financial inclusion, boosted by digital and mobile finance platforms that are blossoming across the region, authorities in southern Africa should enhance competition in banking systems.
This was according to Absa Bank chief strategy and sustainability officer Punki Modise, who said that there were varying levels of debt-to-GDP ratios across African countries, while some regional sovereigns such as Kenya, Ghana and Egypt have adopted unsustainable debt strategies.
Standard Bank said on Thursday that currency volatility in some regional markets had intensified in the first five months of the current year. This comes as South African banks expect non-performing loans to escalate in their home market.
Nonetheless, regional financial experts reckon that robust competition in South Africa’s and regional financial ecosystem will improve bankability in the private sector and improve financial inclusion.
“Authorities (in the region) should enhance competition in the banking systems through the promotion of new players, especially those that help to improve financial inclusion,” said Modise.
Speaking at a regional financial dialogue focusing on southern Africa, she added that banks operating in Africa need to have a more end-to-end approach to risk management.
With the exception of South Africa, most capital markets across southern Africa had a low market capitalisation. The JSE closed 2023 with a capitalisation equal to 133% of South Africa’s GDP in that year, against 51.9% of Mauritius and 18.6% of Namibia. Nonetheless, the South African bourse was battling for liquidity.
“A lack of liquidity characterises the bulk of the South African stock market and the breadth of the stock markets in the region remains limited. Furthermore, a small, listed number of companies and corporate bonds tend to dominate the fixed income market while the proportion of government bonds in the normal value is much higher.”
Moreover, a “deeper pool of insurers is required for the acceleration of green bonds growth in the region, especially among corporate borrowers”, said Andrew Bamugye, senior investment manager for SMEs at the Trade and Development Bank.
Regional experts say the southern African pension fund penetration rate remains low in these countries. However, the high pension penetration rate in South Africa, Namibia and Botswana were the result of good investment returns on the funds as boosted by diversified investment strategies coupled with a strong asset allocation process.
“Southern African region’s financial sector faces financial challenges that include liquidity issues, debt distress, limited access to financial services, high levels of informality and regulatory constraints. Despite these challenges, it is important to prioritise the development of the financial sector to create stability, mobilise domestic resources and foster a stable environment for investment,” said Eunice Kamwendo, ECA’s director for southern Africa.
However, other experts noted that the banking sector in southern Africa has remained solvent with adequate capital as “banking liquidity remains sufficient, with most banks seeing profitability” between 2021 and 2023.
“The challenge in the banking industry in the region is the strong interconnection between the banking system and non-banking financial institutions and foreign markets, which leads to the risk of contagion,” added Bamugye.
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