How findings by SEC in Ecobank highlight risks in large Pan-African banks – Fitch

The findings of the Nigerian Securities and Exchange Commission investigation into Ecobank Transnational this month highlight the supervision and corporate-governance risks of large pan-African groups, Fitch Ratings said on Friday.

Insufficient cross-border supervision and lower regulatory standards in some frontier markets constrain the ratings of pan-African banking groups.

The ratings of many African banks incorporate operating risks from volatile political and economic environments, and significant credit risks from weak asset quality, high related-party lending and large asset concentrations.

Pan-African banks are growing rapidly, but diversification is not always beneficial to their credit profiles, and their ratings are constrained by the lack of consolidated supervision and collaboration among national regulators. For example, Ecobank has operations in 33 countries and is supervised by 21 regulators.

The Nigerian regulator took the lead in scrutinising the group's corporate governance following well-publicised allegations of mismanagement last year.

Fitch believes the regulators of South Africa, Morocco, Kenya and Nigeria are the strongest in Africa.

Outside these countries, most banks report according to local accounting standards, and transparency is limited. The overall lack of complexity in the banks' operations means that regulatory standards in many frontier markets are not in line with international ones.

There is often a significant variation from one national regulator to another, and Fitch believes that there is an element of regulatory forbearance for requirements on regulatory reporting in some markets. Limited co-ordination between national and regional regulators in some regions, where bilateral memorandums of understanding are relatively few and new, can worsen the risks being taken by pan-African banks.

Fitch believes that local and regional regulators face difficulties in adequately supervising these groups, despite technical support from multilateral agencies and foreign regulators such as France's.

Regulators face basic challenges, despite continuous efforts to work together - such as within the West African Economic and Monetary Union and the Central African Economic and Monetary Community.

These can be as simple as finding experienced individuals with strong credit and risk skills to regulate pan-African operations across multiple and culturally diverse countries. BDlive