Very tough 18 months ahead for African banks, Fitch says

Accra, Ghana — The next 12-18 months will be “very difficult” for African banks as widespread inflation, currency devaluations and interest-rate hikes sweep the region, a senior director of credit ratings agency Fitch said on Wednesday.

African economies have struggled over the last year in the face of external forces including Russia’s war in Ukraine, a global economic downturn and lingering effects from the Covid-19 pandemic.

Growth opportunities over the next one-and-a-half years will be limited, but regional banks are expected to maintain their profitability in the face of shocks of medium severity, Fitch senior director Mahin Dissanayake said during a media briefing.

“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 dollarised 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