Fitch, the credit rating agency, said that the next 12–18 months will be “very difficult” for African banks as widespread inflation, currency devaluations, and interest rate hikes sweep the region.
Russia’s war in Ukraine, the global economic downturn, and the aftereffects of the COVID-H19 pandemic are just a few examples of the external forces that have weighed heavily on African economies over the past year.
Fitch senior director Mahin Dissanayake said in a press briefing that regional banks are expected to maintain profitability despite shocks of medium severity, despite the fact that growth opportunities over the next 1.5 years will be limited.
“These countries have global pressures as well as domestic pressures, so we think that the operating environment for banks is looking quite gloomy going forward,” Dissanayake said.
“The opportunities for growth will certainly be limited … but the Covid-19 pandemic showed us that African banks can be resilient when faced with global shocks.”
Dissanayake said that Morocco was the country most likely to be affected by the economic slowdown in Europe, given its dependence on European trade and tourism.
Nigerian banks are likely to be affected by the naira’s ongoing depreciation, he said.
Nigeria, an import-dependent country with a highly dollarized banking sector, is likely to experience increased import costs as the dollar strengthens, which corporate borrowers will struggle to pass on to customers, he said.
Currency shortages are likely to pose challenges to Nigerian banks directly, while they may also see more loans to small businesses become impaired, Dissanayake said.
Reuters
