Impact of intracontinental cross-border banking in Sub-Saharan Africa

Abstract

Banks are deemed systemically important for the financial inclusion and economic development of the African Continent (Banker, 2016). Cross-border banking can accelerate the development of the banking sector and in Africa, intra-continental cross-border banking is being encouraged for the benefits it is believed to provide. The literature is inconclusive as to whether cross-border banking is beneficial and there is limited information on the advantages of intracontinental cross-border banking in Africa. Governments and regulators have been promoting this model, but they might be wrong. The purpose of this research was to determine whether intracontinental cross-border banking is more productive and beneficial to the banking industries within sub-Saharan Africa when compared to intercontinental cross-border banking. Secondary data was sourced from the Orbis database which is owned by Bureau van Djik. Countries were grouped into three categories which are: Countries that only have domestic banks and intracontinental cross-border banks Countries that only have domestic banks and intercontinental cross-border banks Countries that have domestic banks, intracontinental cross-border banks and intercontinental cross-border banks Appropriate financial measures were identified and a mean difference test was applied to the various groups to determine if intracontinental banks are more efficient, result in lower fragility, lead to greater competition, as well as intermediation. Although the literature by Beck (2015), Enoch et al. (2015) and Witte (2014) are supporters of cross-border banking and in particular, intercontinental cross-border banking in terms of the competition, efficiencies and financial stability it introduces, this paper finds no conclusive evidence that intracontinental is more beneficial to Sub-Saharan Africa, based on the financial information which was measured and the data that was used.