Jun 24, 2013
Limassol, June 19th 2013 - Banking systems across Sub-Saharan Africa (SSA) have grown and strengthened significantly over the past decade, says Moody's Investors Service in a new Special Comment published today, and favourable macroeconomic, regulatory and financial trends indicate that further improvements lie ahead.
However, although Moody's expects that most banking systems will sustain the current positive trends, progress will not be uniform as key downside risks remain, including the region's vulnerability to commodity price fluctuations, infrastructure bottlenecks in the transport and energy sectors, and still-significant risk-management shortcomings.
The report, "Sub-Saharan Africa: Banking Overview" is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.
Economic growth in SSA remains robust supported by favourable commodities prices, improved public finances, and strong investment and domestic demand. "These macro developments will have a favourable impact on Sub-Saharan Africa banking systems, with the potential for double-digit balance-sheet growth and new business opportunities, especially in corporate banking" says Constantinos Kypreos, a Moody's Vice President and author of the report. "Nonetheless, we note that there are downside risks as persistent infrastructure bottlenecks, corruption, and socio-political instability will test banking systems' resilience and ability to maintain sound financial metrics."
Moody's also says that SSA regulatory and supervisory practices are moving closer to international standards, which will support banks' evolving risk-management and corporate-governance capabilities. However, Moody's recognises that there are still shortcomings in macro-prudential oversight and challenges being faced in relation to the enforcement of micro-prudential regulations and in some regulators' ability to improve supervision of their respective banking systems.
"Access to financial services across SSA is relatively low; only 24% of adults have an account with a formal financial institution, according to the World Bank. We therefore consider that the potential for further banking penetration remains substantial, particularly for material growth in retail banking," explains Constantinos Kypreos. "However, these opportunities will only fully emerge over several years, as authorities strengthen creditor rights, improve the flow and quality of credit information, and financial institutions use alternative payment systems, including via mobile phones and money transfers to reach potential clients," says Mr. Kypreos.
As a reflection of the favourable economic projections and gradual improvements in the regulatory environment and banking penetration, the rating agency expects that banks will maintain relatively sound financial metrics, although downside risks will remain. While Moody's expects non-performing loan levels to remain below their historical highs, in part because of expected improvements in regulatory scrutiny and banks'risk-management capabilities, the rating agency also notes that asset quality will remain a key risk, partly reflecting unseasoned loan books and the evolving nature of risk management processes.
Re-disseminated by The Asian Banker