A new shield for central banks

Radical reforms will be undertaken this year in banks across Africa, following wide-ranging proposals by central bank governors from the continent.

The reforms — details of which are to be announced before the end of next month — will see banking and financial regulatory standards revised to shield the sector from the current financial instability.

An unanimous agreement on this was reached by the Committee of Ten (C10) during its fourth meeting in Cape Town, South Africa.

The C10 comprises 10 top governors from Africa selected in 2008.

The Cape Town meeting was attended by South Africa, Algeria, Botswana, Cameroon, Egypt, Kenya, Nigeria, Tanzania, the Central Bank of West African States and the Central Bank of Central African States.

South Africa’s Finance Minister Pravin Gordhan said a review of the regulatory framework in the continent’s banking industry is pivotal since Africa’s economy should be propelled by sound policies “that will withstand the waves of financial crises.”

“At the time of C10’s conception in late 2008, signs of the second round effects of recession were biting the developed world. The signs included declining exports and reduced foreign direct investment, remittance and tourism-related inflows.

“As a result of the financial crisis, Africa’s growth rate declined from around six per cent between 2005 and 2008 to two per cent last year.

“We also experienced a deterioration of macroeconomic balances, growing unemployment and escalation of poverty. As expressed by the C10 representative from the Central Bank of West African States, the financial crisis will impact negatively on the achievement of the Millennium Development Goals,” Mr Gordhan said.

Despite many African countries reporting that the global crisis had subsided and that economies are recovering, Mr Gordhan says a sustained recovery path is yet to be defined.

He cites the withdrawal of stimulus measures and implementation of exit strategies that reduce support for growth, even as employment remains weak.

Other contributing factors include high fiscal deficits that have resulted in unsustainable public debt in many countries and unprecedented bail-out of large banks during the crisis.

If left unchecked, the minister said, these could sow seeds of a future crisis.

The EastAfrican has established that the African Development Bank will convene a meeting of African central banks and regulators to discuss the key issues that will feed the views of the C10 into the consultative process that closes in April.

Since the start of the past decade, AfDB has pumped more than $9 billion into the continent, making it Africa’s largest.