In any economy, banks play the critical role of re-allocating capital, from surplus areas into deficit areas. It is a role that sees them take deposits from the public and use the same to issue loans to businesses, both large and small. But that process hasn’t been happening much in Sub-Saharan Africa. Instead, banks, motivated by risk-aversion, have been funneling liquidity into the coffers of governments through government-issued debt securities. SSA banks must get back to the business of lending to the private sector if they are to escalate shareholder returns.
Sub-Saharan African central banks are racing to enhance financial regulation, especially surrounding capital conservation and balance-sheet fortification. Ghana and Uganda are the latest to join the race having enforced ever stricter requirements on their banks, falling into step with the rest of the world in the aftermath of the global financial crisis.