In this article, we focus on the Russian and West African banking sectors with the aim of carrying out a comparative analysis on the basis of common peculiarities. The final task for us is to form conclusions and propose pathways of development for the banking sector of African countries located in the west of the continent based on the example of Russia.
Keywords: bank, West African banking system, Russian banking system, bank system development, bank system comparison
Ключевые слова: банк, банковская система Западной Африки, банковская система России, развитие банковской системы, сравнение банковских систем
Introduction
The African countries which are located in the western part of the continent partly belong to the so-called developing countries. This classification, which classifies countries into two distinct categories (developed countries and developing countries), is used in particular by the World Bank but it remains controversial because it implies that developing countries are “behind” others. Although this approach is criticized for the term “developing” considered pejorative [1] which it uses, it is clear that in fact in certain points, these so-called developing countries present weak economic indicators. According to an estimate from the International Monetary Fund (IMF) [2] for the year 2023, world GDP amounted to 104.476 billion dollars and the share of African countries, the majority of which are developing countries or underdeveloped represents only 2.7 %.
Table 1
GDP, current prices (Billions of U. S. dollars)
|
Rank |
Continent |
GDP (US$billion) |
Share |
|
World |
104,476 |
100.0 |
|
|
1 |
Asia |
38,435 |
36.8 |
|
2 |
America |
31,603 |
30.2 |
|
3 |
Europe |
25,440 |
24.4 |
|
4 |
South America |
4,100 |
3.9 |
|
5 |
Africa |
2,858 |
2.7 |
|
6 |
Oceania |
1,979 |
1.9 |
|
Unaccounted |
62 |
0.1 |
This table shows the poor economic performance of African countries. This weakness in the economy brings with it the banking sector which is the subject of our study.
- The Russian and West African banking sectors
In addition to sharing the “developing” character with most West African countries, the legal origins of the principle of regulation of the Russian banking sector are French according to a report from a study carried out in 2016 by the Central Bank of Russia [3], African countries inherited it after colonization. This study classifies financial sectors into 4 different categories — Autonomous, Balanced Leaders, Overheated Leaders, Junior Partners. Russia is part of the first group whose countries are characterized by the fact that they have an economy oriented towards raw materials and a developing export sector. These characteristics are common to several West African countries.
The report initially argues that countries belonging to this group have a weak banking sector. Indeed, loans to the private sector as a percentage of GDP ratio is on average only 35.8 % in African countries compared to 54.4 % in Russia. Also, bank assets to GDP are also only 57 %, which is half of the amount in developing countries outside Africa [4].
The level of banking penetration in West Africa is around 55.07 % compared to 89.72 % for Russia in 2021 [5], this data includes accounts opened with mobile money service providers. Moreover, the Autonomous cluster countries are subject to numerous banking crises [6].
Table 2
Episodes of Banking Crisis in Sub-Saharan Africa
|
Countries |
Dates |
Scope |
Estimated Losses |
|
Benin |
1988–90 |
Collapse of all three banks; 78 percent of banking system loans nonperforming at end-1988 |
17 percent of GDP |
|
Côte d’Ivoire |
1988–91 |
4 large banks accounting for 90 percent of banking system loans affected; nonperforming loans at 4 largest banks reached about half of total credit outstanding |
Government costs equivalent to 25 percent of GDP |
|
Guinea |
1985 |
6 banks accounting for 99 percent of banking system deposits insolvent; 80 percent of banking system loans nonperforming |
Repayment of deposits equivalent to 3 percent of 1986 GDP |
|
Nigeria |
1991–95 |
8 banks insolvent and 45 percent of banking system loans nonperforming at end-1992 |
- Development paths for the banking sectors of African countries
Firstly, the regulatory framework of the African banking system must evolve. According to a study carried out in 2021 [7], it was found that there is a prevalence of weak financial institutions in most African countries. The current framework is not very favorable to the development of economic business. Indeed, this study showed that financial repression is high, creditors' rights are weak with lengthy problem resolution procedures and, moreover, contracts enforcement is lacking.
In addition to this, importance must be placed on technological innovation. The development of banking services can be done through the use of smartphones. Indeed, we must go beyond simple mobile money services and be able to offer banking offers adapted to individuals. In West Africa in 2025, the number of mobile telephone subscribers will increase by 75 million new ones, which will increase penetration to more than 54 % [8].
Financial literacy is also a point on which development efforts must focus. African populations must know the advantages of using banking services, also know the risks and ways to protect themselves. The notions of savings, credit and investment need to be clarified so that users of banking services improve their resilience and financial capacity. The social impact must not be left aside either. We must prioritize financial practices and investment programs that benefit the community in the long term and support sustainable development objectives.
Conclusion
The development of the banking sector is an imperative for the development of West African countries. Many countries like Russia offer examples of development that have proven themselves over time. Several development paths have been revealed which involve the renewal of the regulatory framework, technological innovation and financial literacy in particular.
References:
- Tariq Khokar, «Should we continue to use the term “developing world”», novembre 2015, http://blogs.worldbank.org/opendata/should-we-continue-use-term-developing-world
- «GDP (Nominal), current prices». International Monetary Fund. International Monetary Fund, https://www.imf.org/external/datamapper/NGDPD@WEO/OEMDC/ADVEC/WEOWORLD/AFQ
- Comparison of the Russian and other countries’ financial sector models. The Central Bank of the Russian Federation, 2016
- Mlachila, M., Cui, L., Jidoud, A., Newiak, M., Radzewicz-Bak, B., Takebe, M., Ye, Y. and Zhang, J. (2016), Financial development in Sub-Saharan Africa: promoting inclusive and sustainable growth, Washington, DC: International Monetary Fund.Google Scholar
- Account ownership at a financial institution or with a mobile-money-service provider (% of population ages 15+) — Sub-Saharan Africa, retrieved 20/03/2024, https://data.worldbank.org/indicator/FX.OWN.TOTL.ZS?locations=ZG
- Roland Daumont, Françoise Le Gall, and François Leroux, Banking in Sub-Saharan Africa: What Went Wrong?, April 2004, IMF Institute
- Mutarindwa S, Schäfer D, Stephan A. Differences in African banking systems: causes and consequences. Journal of Institutional Economics. 2021;17(4):561–581. doi:10.1017/S174413742100014X
- West Africa the Mobile Economy 2018, GSMA
