African banks should adopt Nigerian regulatory model – Zimbabwean official

African central banks should adopt Nigeria’s approach to regulating banks, a senior official at Zimbabwe’s ministry of finance has said.

Both domestic and foreign banks should be subject to a Nigerian-style uniform regulatory framework, Joseph Mezano told Central Banking’s National Asset and Liabilities Management conference in Cape Town.

“All banks in Nigeria, whether domestic and foreign, are treated equally and supervised under a uniform framework,” Mezano said. “In the event of a liquidity crisis, the central bank is the lender of last resort to all banks operating in Nigeria.”

African central banks needed to make improvements to their regulatory and supervisory framework in order to reap the potential benefits brought by foreign banks, Mezano argued. In many countries, he said, international banks make up 40–60% of the financial market. “There is the risk they [international banks] will introduce foreign risks, especially in the realm of international policy shocks,” Mezano said.

“Host supervisors face the challenge of devising appropriate cross-border contingency plans for winding down unviable or failed banks,” he said.

Bank internationalisation, Mezano said, is no “panacea” for guaranteeing financial development and stability. “The benefits will not accrue unless the institutional environment is developed,” he said.

“Existing policy distortions in domestic systems – such as poorly designed safety nets, and weak regulation and supervision that generate excessive risk-taking incentives – tend to be magnified through international banking that expands risk-taking opportunities.”

But Mezano said it was important for central banks to adopt policies that would attract foreign banking firms.

The entry of foreign institutions, Mezano said, would not only help improve regulation and supervision, it would also pressure central banks to enforce a more “disciplined” macroeconomic framework.