A Kwame Nkrumah University of Science and Technology, Kumasi (KNUST) research has identified high market concentration and operational inefficiencies as key reasons borrowing remains expensive and savings unattractive across Africa.
The study, published in the journal Economic Change and Restructuring, analysed 552 commercial banks across 52 African countries, making it one of the most comprehensive examinations of banking intermediation margins on the continent to date.
The researchers found that market concentration, particularly among non-African foreign banks, enables a few dominant institutions to charge significantly higher lending rates. High operating costs, elevated credit risks and interest rate volatility were also identified as major contributors to persistently high banking spreads.
The findings suggest that governments and central banks across Africa must address both structural issues within the banking sector and inefficiencies within individual financial institutions if the continent is to unlock affordable credit and accelerate private-sector development.
According to the study, domestic and regional African banks are expanding rapidly across the continent but continue to struggle against the competitive advantage and market power of large foreign banks.
While African banks generally charge lower intermediation margins, the researchers noted that they are constrained by higher operating costs, weaker management efficiency, limited risk management capacity and inadequate technological investment.
The study argues that African banks need stronger institutional support, not only to expand across borders, but also to compete effectively in efficiency, innovation and operational strength.
The researchers also found that financial innovation, including wider ATM penetration and digital banking services, helps reduce banking spreads by improving efficiency and reducing reliance on interest-based income.
Banks that generate more income from non-interest sources such as transaction fees, payment services and trading activities were found to charge lower lending margins, suggesting opportunities for cross-subsidisation and more affordable credit delivery.
To address the high cost of financial intermediation, the study recommends targeted reforms, including strengthening competition within the banking sector, supporting digital transformation to reduce operational costs, improving credit information systems and risk management frameworks, promoting diversified income streams for banks, and maintaining macroeconomic stability.
The authors noted that inflation significantly increases banking spreads, making coordinated fiscal and monetary policies critical for reducing borrowing costs.
They concluded that lowering intermediation margins would be essential for increasing access to affordable credit, supporting small and medium-sized enterprises, mobilising domestic savings and accelerating inclusive economic growth across Africa.
The study was co-authored by Bismark Addai and Wenjin Tang of Changsha University of Science and Technology, China; Adjei Gyamfi Gyimah of Career Spring Institute, Ghana; and Professor Kingsley Opoku Appiah of the KNUST School of Business.
