Outlook for African Banks in 2020 Turns Negative as Operating Conditions Weaken

Monday, December 09, 2019 / 2:42 PM / by  Moody's Investors Service / Header Image Credit: EcoGraphics

• Outlook for African banks in 2020 is negative due to weakening operating conditions and rising asset quality pressures
• Banks will maintain high exposures to their respective sovereigns, linking their credit profiles to those of their governments

The 2020 outlook for African banks has changed to negative from stable, reflecting their weakening operating environment, Moody's Investors Service said in a report published today.

The global economy remains sluggish with negative business sentiment and trade uncertainty clouding growth prospects. In Africa, government debt is high and GDP growth will remain below potential and insufficient to boost per capital income levels or increase economic resilience.

"Weakening operating conditions are pressuring governments' credit quality leading to a knock-on effect on banks through reduced business generation, slower credit growth and rising asset risk," said Constantinos Kypreos, Senior Vice President at Moody's.

Asset risk will remain high, a result of rising government arrears, high loan concentrations, borrower friendly legal frameworks, and still evolving risk management and supervision capabilities. Importantly, banks will maintain high exposures to their respective sovereigns, which links and caps their credit profiles to those of their governments.

However, most rated African banks maintain high capital levels, and funding and liquidity in local currency will remain solid in most countries. Regional variations remain: banks in South Africa, Nigeria, Tunisia and Angola will face the greatest challenges; Egyptian, Moroccan, Mauritian and Kenyan banks will be more resilient.

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