As Foreign Banks Depart, African Economies Face Urgent Call for Competitiveness Reform

Nairobi, Kenya – African economies are entering what analysts describe as a critical juncture, as a wave of withdrawals by foreign banks prompts an urgent reassessment of competitiveness, regulation and financial sector strategy across the continent.

Recent years have seen a growing exodus of major global banking institutions from Africa. European and UK-based banks that for decades operated in multiple African markets are now scaling down or completely exiting.

According to latest reports, Africa’s overall competitiveness score has weakened — a downturn closely tied to shrinking foreign banking presence and declining foreign direct investment (FDI).

Why Banks Are Leaving

Industry observers attribute the retreat to a combination of structural, regulatory, and market-driven pressures.

Declining profitability and rising costs: The operational environment in many African markets — characterised by currency volatility, inflationary pressures, and stricter compliance requirements — has eroded return on investment for foreign banks.

Competition from fintech and mobile-money services: Rapid growth in digital financial services has undercut the traditional retail banking model. Fintech firms and mobile money operators now deliver services to segments previously underserved by conventional banks.

Regulatory burden and compliance risk: Increasing demands for anti-money laundering (AML) compliance, combined with fragile macroeconomic environments and political instability in some countries, have made operations riskier and less attractive to global investors.

As a result, institutions such as Western European banks, long present in Africa’s financial landscape, have divested significant holdings or withdrawn wholesale from key markets.

Consequences for African Economies

The retreat of foreign banks carries immediate and long-term implications:

Reduced access to trade finance and foreign exchange: Without international banking correspondents, companies — particularly those involved in cross-border trade under frameworks such as the African Continental Free Trade Area (AfCFTA) — may face difficulties securing trade financing, import credit, and foreign exchange liquidity. Experts warn this could undermine regional trade momentum.

Pressure on domestic financial institutions: The void left by global banks creates both risk and opportunity for local banks. While some argue that reduced competition may lead to consolidation and loss of innovation, others believe domestic lenders can adapt faster, offering services tailored to local realities.

Deterioration in business climate scores: Declining access to a robust financial services sector tends to depress overall competitiveness indices, discouraging foreign direct investment and long-term capital flows. The latest 2025 competitiveness ranking reflects this downward shift.

The Reform Imperative: What Must Be Done

Given the structural shifts underway, African policymakers and financial sector leaders must act to shore up competitiveness and build resilience. Key priorities include:

1. Strengthening local banking capacity and regulation

Local and regional banks must be empowered — through regulatory support, capital adequacy frameworks, and technological capacity — to step into roles vacated by departing global banks. Regulators should encourage consolidation where appropriate, support liquidity frameworks, and facilitate correspondent banking relationships domestically and across borders.

2. Promoting financial inclusion through fintech and mobile-money innovation

Rather than resisting technological disruption, countries should embrace fintech solutions and mobile banking as tools for expanding financial inclusion, especially in rural and informal sectors. This approach can reach populations excluded from traditional banking and reduce dependence on foreign institutions.

3. Enhancing business environment and institutional transparency

Improving regulatory transparency, governance, and ease of doing business will attract new forms of investment, including regional banking institutions, development finance entities, and pan-African financial conglomerates.

4. Supporting trade finance and foreign exchange flows for regional trade

With institutions withdrawing, governments and multilateral development banks must consider mechanisms to facilitate trade finance and forex liquidity — especially important for countries participating in AfCFTA and other regional integration frameworks.

5. Encouraging domestic and regional banking champions

Pan-African banking groups with strong regional presence and local knowledge can offer a viable alternative to foreign banks. Supporting their cross-border expansion — with adequate regulatory frameworks — can stabilize financial services across the continent.

A Moment of Risk — and Opportunity

The departure of foreign banks is a symptom of deeper structural shifts: changing global capital flows, digital disruption, regulatory evolution, and shifting risk perceptions. For African economies, this is not merely a crisis — but a call to action.

With deliberate reforms, strengthened regional cooperation, and strategic support for domestic financial institutions, the continent can transform this challenge into an opportunity: to build a more resilient, inclusive, and dynamic banking ecosystem tailored to African realities.

Failure to act, however, risks further decline in competitiveness, weakened trade capacity, and diminished economic sovereignty.

As African nations navigate this critical period, the decisions taken now will shape the direction of their economies, trade networks, and financial sectors for decades to come.