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Finance for Growth in Africa

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Finance for Growth in Africa Patrick Honohan World Bank – PowerPoint PPT presentation

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Title: Finance for Growth in Africa


1
Finance for Growth in Africa
  • Patrick Honohan
  • World Bank

2
African banking systems are small -- absolutely
3
and relatively Liquid Liabilities (M3) as
GDP
4
Private Credit/ GDP vs. GDP per capita
5
One reason Offshore Deposits
6
But there is a deepening in progress
7
Real Interest Rates No Trend
8
Banking is expensive Net Interest Margins
9
Stock Markets Picking Up
10
Stock Markets Main Deficiency Is Inefficiency
11
Four pervasive challenges
  • Scale
  • Informality
  • Governance
  • Shocks

12
Getting banks lending more (1)
  • Its not a shortage of liquidity
  • There are some regulatory issues
  • Excessive zeal
  • (BTW dont misread history on African bank
    failures)
  • But mainly its a (mostly well-founded) lack of
    banking nerve
  • The usual fixes
  • Better information and better contract
    enforcement
  • (if you have to choose go for information)

13
Banks stay liquid (dont lend much)
Bank liquidity ratios in SSA quartiles by country
0.6
0.5
0.4
0.3
0.2
0.1
0
1980
1985
1990
1995
2000
2005
14
Where do banks invest their resources?
15
(No Transcript)
16
(No Transcript)
17
Getting more banks to lend
  • The arrival of regional and international banks
  • In only 3 countries are most of the banking
    systems in the hands of governments. (You know
    why)
  • Scale good for efficiency and maybe OK for
    client focus too with modern lending technologies
  • Ensuring enough competition remains a challenge

18
Bank ownership Africa and ROW
19
Term finance and risk finance beyond commercial
banking
  • Pension funds etc are the natural providers of
    long-term financing
  • Ensuring governance is key
  • Securities markets can help (transparency of
    pricing etc.)
  • Simpler regulation could help increase listings
  • As could leveraging regional links
  • Mortgage financeinfrastructural project finance

20
Finance for Growth (1) summary
  • Making banks more comfortable with lending
  • Work on information infrastructures (and
    legal/judicial ones)
  • Prune unnecessary regulations (also for
    securities markets)
  • Long-term and risk finance
  • Government-run DFIs are not the solution (if you
    must have state-owned financial firms ensure
    level-paying field, governance procedures limit
    downside risk)
  • Build on the investable funds of pension/social
    security fundssupported with transparent
    governance
  • Infrastructure and mortgage finance deserve
    attention

21
Finance for Growth (2)
  • Stabilize the macro/monetary environment
  • Work on predictable debt management
  • Make sure inflows not choked-off
  • Regional arrangements
  • Concentrate on high yield, feasible dimensions
    first
  • E.g. shared banking supervision
  • or hub-and-spoke securities markets
  • Common currencies may be harder to deliver
    requiring more macro and political prerequisites

22
Finance Can Help Growth in Africa Also!
23
Approaches (1) Modernism (vs. Activism)
  • Transplant best practice from the advanced
    economies, e.g.
  • Better legal protection for creditors including
  • procedures for collecting on collateral
    (including leasing)
  • judicial efficiency and probity
  • Clarify land ownership (good for collateral)
  • Improve information
  • credit bureaux
  • accounting (and auditing)
  • Better protections for investors in stock
    exchange
  • Strengthen prudential supervision of banks
    AML/CFT
  • Liberalized entry (charts)

24
Excesses of Modernism
  • Land issues are not just a question of improving
    land registration
  • Unrealistic stock exchange rules prevent medium
    firms from listing
  • AIM-type model might work better
  • Basel 2 bank regulation would be
    counterproductive
  • Excessive AML/CFT procedures a barrier to access
    of the poor
  • Can capital controls be removed safely?

25
The three-line take-away on finance for growth in
Africa
  • A need to have improved contract enforcement and
    transparency of information
  • Governments are not the best source of long-term
    funds
  • But they do need to provide a stable
    macroeconomic background
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