Industry overview
In major African economies, the banking industry is typically split into categories (known as tiers) based primarily on asset size, regulatory capital, and market influence. Tier 2 banks refer to the second most important set of banks by assets and are distinguished by these key features:
- Regulatory capital: Tier 2 banks have elevated regulatory capital thresholds but lag those of Tier 1 banks. They also tend to have lower liquidity thresholds and less regulatory oversight.
- Systemic importance: They are classified as important financial institutions whose failure could have a meaningful (but constrained impact) on the industry as a whole, as opposed to the broad-based effects of tier 1 banks.
- Size and scope: Tier 2 banks typically have significant asset bases, sizable branch networks, and strong, plain-vanilla banking services. These features are smaller in size relative to tier 1 banks.
Kenya and Ethiopia have the most prominent medium-sized banks in the
