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Local banks spur cross border trade – Report

Local banks are on the front row in enhancing inter-regional trade through pan African banking, a report by PwC shows.

The Global Economic Watch, released early this month, shows that the total shares of exports to sub-Saharan Africa across four economies including Kenya, Nigeria, South Africa and Togo increased from 12 per cent in 2007 to 23 per cent in 2016. The increase is an equivalent of $11.7 billion (Sh1.21 trillion).

Locally-grown banks Equity and Kenya Commercial Bank dominate the large cross-border banking group in terms of size and subsidiaries with each having a presence in six and seven countrys respectively.

This growth has made Kenya the largest beneficiary of the share of SSA trade, having the highest percentage of 35 per cent. A large part of this portion is from trade within the East Africa Community.

The two banks have largely leveraged their expertise in agent and mobile banking services to expand to other countries by targeting the underbanked in the East African Community. Other banks with a bigger presence in terms of cross border banking include Standard Bank and Ecobank.

While the number of crossborder subsidiaries of African banks has almost tripled since 2002, there are now 10 Pan African Banks with a presence in at least 10 SSA countries, and one with a presence in over 30 SSA countries.

PwC’s economist James Loughridge attributes the fast growth to expansion of SSA markets between countries, that has seen banks follow corporate client abroad, and secondly to the global financial crisis that has seen a large scale retrenchment of western banks, especially European and American banks.

“Regulatory tightening, with respect to capital requirements and the large fixed cost of maintaining relatively small-scale operations proved too costly,” Loughridge said in the report. A 2015 paper by International Monetary Fund, Opportunies and Challenges for Crossborder Oversight, expansion of these banks reflects the increase in economic integration within Africa.

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