Moody's 2020 Examination: Negative Outlook For African Banks

A recent examination of African banks and their operations by the Moody's Investors Service has shifted from stable to negative after factors like their tenuous operating environment were taken into consideration in their 2020 outlook for African banks.

Moody's is a global rating agency for international financial research, and in its recent observation of banks in the African financial sphere, it noted that African economies have slowed with trade uncertainties plaguing the economies and negative business sentiment.

Moody’s Senior Vice President, Constantinos Kypreos said, “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.

“African banks’ average capital stands at around 10.6 per cent of assets, higher than the global average of 7.8 per cent. The average capital adequacy ratio is 16.3 per cent of risk-weighted assets, signaling the banks have capacity to absorb some unexpected losses. “We expect broadly stable capital in 2020, given the banks’ resilient earnings generation (despite some pressures, see below) and a less aggressive shareholder base, which allows them to reduce dividend payouts if required.

“We expect a number of bank insolvencies over 2020, a result of volatile operating conditions, weak governance, flaws in the internal assessment of capital needs (ICAAP) or the application of outdated (and so weaker) capital principles. The majority will be small, unrated banks,”