African governments and policymakers are pushing National Development Banks (NDBs) to play a greater policy role in the financing of the UN’s ambitious 2030 Agenda for Sustainable Development Goals (SDGs).
Sovereign support remains a key rating consideration for African NDBs; however, achieving financial sustainability is critical to playing a more substantial role, Fitch Ratings says in a new report.
African NDBs are state-owned policy banks mandated to pursue socio-economic objectives, including industrialisation, export promotion, job creation and financial market development. In Africa, these banks have long suffered from ineffective business models, weak asset quality, poor corporate governance and negative perceptions from market participants.
These NDBs have received more sovereign support due to a change in political climate over the past decade, with many governments returning to state-led development policies and with development objectives more closely aligned with the implementation of the SDGs’ agenda.
More recently, several African NDBs were created or revived by governments, which recognised these banks’ potential as additional sources of financing and expertise in facilitating development goals.
Fitch has analysed the financial profiles of ten NDBs in South Africa, Morocco, Nigeria, Namibia, Botswana, Rwanda and Uganda against their potential to achieve financial sustainability and to deliver on policy objectives.
In our view, leading African NDBs can play a key financing role in supporting the SDGs, especially mobilising concessional funding from large international development lenders and domestic private-sector investments.
These banks will have to secure substantially more funding from non-sovereign sources to pursue rapid growth, which will put them under heightened scrutiny.
Financial sustainability is the next big challenge, requiring improved internal capital generation and diversification of cost-effective funding to achieve the business transformation strategies pursued in recent years.
Fitch rates the following four African NDBs, with ratings and Outlooks aligned with respective sovereigns, reflecting high support propensity: Bank of Industry (Nigeria, B/ Stable), Development Bank of Namibia (BB/ Negative), Uganda Development Bank (B+/ Negative) and Development Bank of Rwanda (B+/ Stable).
