(Repeat for additional subscribers)
Jan 31 (The following statement was released by the rating agency)
The findings of the Nigerian Securities and Exchange
Commission investigation into Ecobank Transnational Incorporated (ETI) this
month highlight the supervision and corporate governance risks of large
pan-African groups, Fitch Ratings says. Insufficient cross-border supervision
and lower regulatory standards in some frontier markets are constraints on the
ratings of pan-African banking groups.
The ratings of many African banks already incorporate operating risks from
volatile political and economic environments, and significant credit risks from
weak asset quality, high related-party lending and large asset concentrations.
Pan-African banks are growing rapidly, but diversification is not always
beneficial to their credit profiles, and their ratings are also constrained by
the lack of consolidated supervision and collaboration among national
For example, ETI has operations in 33 countries and is supervised by 21
regulators. The Nigerian regulator took a lead in scrutinising the groupâ€™s
corporate governance following well-publicised allegations of mismanagement in
2013. We believe consolidated supervision for pan-African groups would encourage
a more cohesive approach to risk management and regulation, and reduce corporate
governance risks. This is important because these banking groups are becoming
systemically important in the region.
We believe the regulators of South Africa, Morocco, Kenya and Nigeria to be the
strongest in the continent. Outside these countries, most banks report according
to local accounting standards and transparency is weak. The overall lack of
complexity in the banksâ€™ operations means that regulatory standards in many
frontier markets are not in line with international ones.
There is often significant variation from one national regulator to another and
we believe there is an element of regulatory forbearance for regulatory
reporting requirements in some markets. In addition, some risks such as
operational risk, exposure to low-rated sovereigns and concentration risks are
not always adequately captured in prudential reporting and capital requirements.
Limited coordination between national and regional regulators in some regions,
where bilateral memorandums of understanding are relatively few and new, can
exacerbate the risks being taken by pan-African banks. We believe that local and
regional regulators face difficulties in adequately supervising these groups,
despite technical support from multilateral agencies and foreign regulators like
that of France.
Regulators face basic challenges, despite continuous efforts to work together â€“
such as within the West African Economic and Monetary Union and Central African
Economic and Monetary Community. These can be as simple as finding experienced
individuals with strong credit and risk skills to regulate pan-African
operations across multiple and culturally diverse countries.
The lack of regulatory coordination means it is difficult to rely on any single
national authority to support a pan-African banking group, if needed. We do not
factor in sovereign support to ETIâ€™s â€˜B-â€™ rating for this reason. The low rating
partly reflects the groupâ€™s exposure to more volatile markets. We would factor
in sovereign support if there were a formal regional support framework between
the countries where ETIâ€™s key subsidiaries are based.