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Policy Brief on the Financial Crisis - A Preliminary Assessment of the Implications of Financial Regulatory Reform for African Countries

04-Jun-2010

Africa has weathered the global financial and economic crisis reasonably well so far. Yet tighter global financial conditions negatively impacted trade, capital flows, remittances, and ultimately economic growth both in 2008 and 2009. While the outlook for 2010 is more positive, with the continent set to grow by about 4 percent, this is wellbelow pre-crisis levels and those needed to achieve the Millennium Development Goals.

One reason for the region’s resilience has been the cushion provided by the financial sector, particularly by the banking sector. Banks’ capital adequacy ratios across the continent averaged 19 percent in 2008. Nonperforming loans have decreased over the last few years in most countries, reaching an average of 6 percent of total loans in 2008 for the continent, though the trend seems to have reversed recently.1 Further, African banks have not generally been exposed to subprime-related structured credit products and other toxic assets, given their limited degree of integration in international financial markets and capital account controls in many countries. Overall, the impact of the crisis on the regional financial sector has been limited.

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