The 2021 outlook for African Banks will be negative because operating conditions will continue to be hard

According to Moody’s Investor’s Service, the African Banks’ outlook will continue being negative even in 2021 due to the difficult conditions for operating and sovereign pressure affecting the credit profile of the Banks’. Even though stable funds and capital might lower the negative impact, the quality of the loan, the number of profits, and foreign currency liquidity will continue being the main stress points for banks come next year.

According to statistics, the operating conditions for African banks will continue to be unfavorable. Besides, the economic slowdown will affect how the banks will be performing, while the capability for the government to offer support will remain unpredicted.

Banks will also remain invested in government securities. This investment will assist in boosting the close credit linkages between banks and their respective sovereigns.

“Our outlook of African Banks remains negative as we head into 2021, with the difficult operating conditions and banks’ close links to their sovereigns because being the key driving factors,” states the senior vice president at Moody’s investors’ service. Heading into next year we expect nonperforming loans to potentially double from 2019 levels as payment holiday expires, while increased provisioning needs, reduced business generation, and margin pressure will erode banks’ profitability.”

The banks in South Africa and Nigeria will undergo macro problems. The banks in Angola will face loan quality challenges and those in Tunisia will face liquidity problems.

East Africa and Francophone West Africa banks are well placed compared to those of central Africa, depending on if the virus resulted in more resilient economies. The banks of Egypt are facing minimal impact from this pandemic. The financial stability of all banks will be broadly maintained. Stable local currency deposit funding, high liquidity in the local currency, good capital buffers, and gradual improvement will assist to contain the banks’ risk for the next 12 to 18 months.