20 December 2017, Sweetcrude, Lagos – Moody’s Investors Service has predicted a negative outlook for the African banking system in 2018 but says banks’ capital buffers will be maintained.
Moody’s report, “Banks — Africa, 2018 Outlook”, said although African banks will maintain solid capital and local currency liquidity buffers in 2018, macroeconomic conditions will remain difficult in a majority of African countries.
It said banks’ maintaining of buffers is reflective of their low balance-sheet leverage.
According to it, profitability will be stable as high provisioning charges will be compensated by income growth in line with nominal GDP (Gross Domestic Product) and resilient margins.
African banks are expected to deliver an estimated pre-tax return on equity of around 17% and return on assets of 2% in 2017, with a similar outcome forecast for 2018, it added.
The report revealed that challenging conditions will most affect banks based in South Africa, Kenya, and Tunisia. Those in Nigeria, Morocco, and Egypt will fare better.
“Although African banks will maintain solid capital and local currency liquidity buffers in 2018, macroeconomic conditions will remain difficult in a majority of African countries.
“Economic growth will remain below historical levels, while political uncertainty will dampen confidence and governments’ capacity for fiscal stimulus will be limited,” said Constantinos Kypreos, a Moody’s Senior Vice President and the report’s co-author.
Higher oil prices and easing drought conditions are expected to drive GDP growth rate for Moody’s rated African countries to 3.9% in 2018 from an estimated 3.1% in 2017.
However, growth will remain below its potential and will fall short of the levels required to increase employment and support meaningful per capita income growth.
In addition, elevated debt levels will create challenging operating conditions that will compromise governments’ capacity for fiscal stimulus. Political uncertainty will dampen investor and consumer confidence.