African Banks: No easy road to recovery – Fitch Ratings
Fitch Ratings says the sector outlook for African banks in 2022 is neutral, with uncertain business conditions and Covid-19 risk constraining recovery.
The rating agency anticipates a slightly faster rise in lending with most economies growing at the trend rate and banks gradually loosening stricter/pandemic-era underwriting standards.
“Our base case also considers risks to global growth, relatively high commodity prices and still favourable external financing conditions.
“We see significant uncertainty with Africa being particularly at risk from new Covid-19 variants, amid very low vaccination rates and governments’ limited fiscal space. If this risk materialises, it could change the outlook quite dramatically,” says Fitch.
“Banks are likely to make mistakes in the pursuit of growth under prevailing operating conditions, which are fraught with challenges and uncertainty. We believe a return to normalisation will be beyond 2022.
Read: AOMCs to push for a freeze on issuance of new licenses to OMCs
Even excluding the serious threat of new variants, banks face the prospects of limited earnings growth, and, therefore, limited loss absorption capacity,” adds Mahin Dissanayake, Head of African Banks at Fitch.
The pace of downgrades has significantly reduced in 2021 compared with the prior year. Barring any significant downside risks, Fitch says it expects these trends to persist in 2022.
Other things being equal, it does not believe asset quality deterioration will be widespread, even with the unwinding of remaining government-support measures.
According to Fitch, the fast rebound in formal and informal economic activity in 2H20 and 2021, strong commodity prices and the resilience of certain economic sectors and loan restructuring continue to contain corporate bad debt.
Also, high unemployment and the consequent impact on retail loans remain a risk. The fast accumulation of government debt securities by banks presents a key risk as the focus shifts to sovereign debt sustainability.
