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Banks are cutting relationships with risky African banks

Staff Writer |
SWIFT data shows that many countries in Africa have seen a reduction in the number of foreign counterparties, the overseas banks with which African banks transact.

The data was part of a new report looking at the impact of global regulations on correspondent banking networks, called "Addressing the unintended consequences of de-risking – Focus on Africa," which was released at the SWIFT Business Forum South Africa, in Johannesburg.

Correspondent banking enables banks to access products and services that might otherwise be unavailable, while enabling cross-border transactions and access to overseas products and markets.

Increasingly, as banks globally respond to new regulatory requirements they are reviewing and rationalising their correspondent banking relationships in jurisdictions where they believe there is greater risk. This is known as de-risking.

The report shows that de-risking is on the rise in several African countries. South Africa lost more than 10% of its foreign counterparties between 2013 and 2015.

In Angola the decline was even steeper, with the number of foreign counterparties dropping by 37% in two years. Mauritius has also seen a sharp decline of 18%.

The data shows that Nigeria’s international banking network has experienced limited de-risking.

However, local banks have at the same time been cutting their own relationships with other African banks and financial services providers perceived to be risky, such as bureau de change and money transmission companies.

The report looks at some of the potential consequences for the affected countries. These include a significant impact on cross-border trade if countries are cut off from the global financial system. This could lead to issues with the supply chain.

There could also be difficulty in accessing some products and services such as international wire transfers, cash management services and trade finance. If traditional banking channels are no longer available, transactions are likely to be forced into alternative channels, which may be less well regulated.

Additionally, de-risking could have a negative impact on financial inclusion rates on a continent where huge proportions of the population are unbanked. Typically it is the smaller, local banks that are de-risked; those that are providing services to local communities.

Therefore de-risking could adversely impact the services available to the poorest in society.

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