## _051809epdf

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### Key Messages
- Important effects on stock, currency, and debt markets.
- Banking systems in SSA have been quite resilient, but no country is immune.
- Spillovers to the real economy could transmit stress to financial systems.
- Priorities will need to be reordered to minimize contagion and to strengthen crisis resolution tools.
- Governments should continue to push for longer-term reform to reinforce and diversify their financial systems.

### Two Main Channels of Transmission
- Lower inflows from abroad: with effects on equity, currency, and debt markets.
- Spillovers into the real economy (second round effects): response of foreign banks, tighter credit conditions, trade finance.

### Market Impacts: Equity, Currency, and Debt
- Sharp Drop in Stock Markets: Selected Africa: Stock Market Index (Jan.1, 2008 =100) — series shown for South Africa, Nigeria, Botswana, Kenya (Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09).
- Pressures on Currency Markets: Selected Africa: Exchange Rates (Jan.1, 2008 =100; National currency per U.S.dollars) — series shown for South Africa, Mauritius, Uganda, Ghana, Kenya, Nigeria, Zambia (Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09).
- Less Access to Global Markets: Sub-Saharan Africa: Issuance of International Bonds, 2004-08 (millions of U.S. dollars)
  - Total: 2004 = 1,697; 2005 = 2,681; 2006 = 4,899; 2007 = 12,319; 2008 = 1,533.
  - Country examples: Gabon: 2007 = 1,000; Ghana: 2007 = 950; Nigeria: 2007 = 525; Seychelles: 2006 = 200, 2007 = 30; South Africa: 2004 = 1,697; 2005 = 2,681; 2006 = 4,699; 2007 = 9,814; 2008 = 1,533.
  - Source: IMF, 2009, Global Financial Stability Review (April).

### Relative Resilience of Banking Systems
- Limited (though increasing) integration with global financial markets.
- Minimal exposure to complex financial instruments.
- Relatively high bank liquidity.
- Limited reliance on foreign funding.
- Low leverage in financial institutions.

### Local Subsidiaries of Foreign Banks
- Modest contagion to local subsidiaries of foreign banks:
  - More cautious lending policies to satisfy regulations and scarce capital in home country.
  - Little or no dependence on funding from parents.
  - Stable deposit base.
  - No unusual capital transfers to parents.

### Tighter Credit Conditions and Trade Finance
- Lending criteria are stricter.
- Banks focus on high-quality core clients.
- Lending margins have widened.
- Thin markets: crowding out concerns.
- Less favorable conditions for financing trade:
  - Costs (interest costs, confirmation charges) have increased.
  - It generally takes longer to close deals.
  - In some countries, letters of credit must now be fully cash collateralized.
  - But trade has not been disrupted.

### Risks and Vulnerabilities
- Credit risks.
- Contagion by deleveraging and rollover risks.
- Credit retrenchment and lower funding.
- Risk of flow reversals.

#### Credit Risk
- Sub-Saharan Africa: Nonperforming Loans, 2004 and 2007 (Percent of gross loans) — chart shows Emerging and Frontier Market Countries average and country datapoints for 2004 and 2007 (Botswana, Ghana, Kenya, Mauritius, Namibia, Nigeria, Seychelles, South Africa).

#### Risk of Contagion by Deleveraging
- Three main risks:
  - Parent banks might be less willing to provide liquidity to their subsidiaries.
  - Parent banks might try to repatriate capital.
  - Parent banks might be unwilling or unable to inject additional needed capital into subsidiaries.
- Three mitigating factors:
  - Subsidiaries have been able to raise deposits locally.
  - African bank operations represent a minimal share of parent banks’ assets.
  - There is an increasing amount of capital in the system.

#### Rollover Risks
- Sub-Saharan Africa: Net Claims of BIS Reporting Banks, End-September 2008 (Percent of GDP) — chart shows net claims for Botswana, Cape Verde, Ghana, Kenya, Mozambique, Namibia, Nigeria, Seychelles, South Africa, Tanzania, Uganda, Zambia and a broad set of other countries; note: "Net claims" is defined as BIS reporting banks' claims on minus liabilities to individual countries.

#### Risk of Credit Retrenchment
- SSA Bank Credit to the Private Sector and Deposits (Change from 2004 to 2007, percentage points of GDP) — chart shows changes in Deposits and Credit to the private sector with scale from -15 to 15 percentage points.

#### Foreign Assets Cushion
- Total Foreign Assets and Foreign Liabilities of Deposit Money Banks in African Region, 2005-2008 (Billions of US$) — series for Foreign assets, Foreign liabilities, Net foreign assets (Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08).

### Policy Priority, Short-Term: Minimize Contagion
- Preventive:
  - Intensify surveillance to detect risks.
  - Ensure adequate liquidity.
  - Encourage public confidence in markets and institutions.
- Crisis management:
  - Establish effective bank resolution mechanisms.
  - Set up procedures for coordinating with other supervisory and monetary authorities.

### Policy Priority, Medium-Term: Reinforce Financial Systems
- Strengthen supervision of financial systems and address regulatory gaps.
- Address weaknesses in the legal and financial infrastructure.
- Develop capital markets.

*Regional Economic Outlook — May 2009 (Sub-Saharan African Financial Systems and The Global Financial Crisis: Impact, Risks, and Policy Priorities)*

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_Source: https://www.imf.org/-/media/websites/imf/imported-flagship-issues/external/country/nga/rr/2009/_051809epdf.pdf_