Banks in the traditional model have expanded from a large home base, which continues to play the dominant role in the group’s activities. In these cases, cross-border subsidiaries contribute less than 20 percent to total assets, with the contribution of any individual subsidiary a lot less. In this group are South African and Moroccan banks and to a lesser extent Nigerian banks.
For banks in the second group, none of which has a dominant home base, the network is most important. Although a bank holding company centrally manages the subsidiaries, the bank subsidiary in the nominal home country is but one among many, and the largest subsidiary might be located in a different country. Examples of this arrangement are Ecobank—headquartered in Togo but with its biggest subsidiary in Nigeria—and Bank of Africa, founded and headquartered first in Mali, with the holding company later moved to Luxembourg and eventually acquired by Moroccan Banque Marocaine de Commerce Extérieur. There are a number of banks whose structures fall between the two models. Moreover, as cross-border operations grow, the dominance of the home presence in the group diminishes.
The economies of both host and home countries receive numerous benefits from cross-border banking. The rise of pan-African banks has increased competition and efficiency, introduced product innovation and more modern management and information systems, and brought higher skills and expertise to host banking sectors. A number of pan-African banks have exported innovative business models and delivery channels, such as mobile banking by Kenyan institutions, to host countries. These advances have helped expand the availability of banking services and products (often called financial deepening).
Pan-African banks have also extended banking services to people with inadequate access to bank services, the so-called underbanked. For example, when Kenyan banks started operations in other member countries of the East African Community, they leveraged their expertise in agent and mobile banking to service underbanked portions of the population. Similarly, Moroccan banks expanded microfinance operations in francophone west Africa while their subsidiaries introduced a focus on lending to small and medium-sized enterprises. Nigerian banks have been instrumental in increasing the number of branches in west Africa, especially in rural areas.
The pan-African bank phenomenon can also help host countries raise their financial standards. Banks from more advanced African economies use higher home-country standards in their subsidiaries, and host authorities are exposed to more sophisticated reporting and supervisory practices—such as capital standards recommended by the Basel Committee (an international group of bank regulators) and the International Financial Reporting Standards issued by the International Accounting Standards Committee. This peer-to-peer learning effect is further reinforced as host regulators benefit through joint on-site supervisory visits of foreign subsidiaries with home authorities and as they participate in supervisory colleges, which bring together regulators for individual banking groups.
The expansion of pan-African banks also benefits the home country banks because they increase their diversification and improve growth opportunities.
The rise of pan-African banks presents new issues for regulators and supervisors. As networks expand, new channels for transmission of macro-financial risks and other spillovers across home and host countries emerge. For example, problems at the parent-bank level, such as perceptions of mismanagement or reputational risks, could lead to bank runs on subsidiaries.
