Serrari Group

Moody’s, the renowned credit rating agency, has unveiled its latest assessments for nine banking sectors across Africa, showcasing a mixed bag of prospects with four sectors marked with a negative outlook, three with a stable outlook, and two with a positive outlook.

The evaluations provided by Moody’s take into account various local factors including operating conditions, anticipated trends in asset risk, capital, and profitability, among other critical elements.

In its reports released today, Moody’s disclosed notable shifts in outlooks for banking sectors in Egypt, Kenya, and the West African Economic and Monetary Union (WAEMU), all transitioning from stable to negative. Constantinos Kypreos, Senior Vice President of Moody’s Financial Institutions Group, highlighted specific concerns for each region.

According to Kypreos, in Egypt, concerns revolve around deteriorating debt affordability and foreign currency shortages, exposing banks to risks associated with potential currency devaluation and interest rate hikes. Similarly, in Kenya, despite robust economic growth, challenges are expected to impact borrowers’ creditworthiness, leading to a further decline in loan quality. Meanwhile, the negative outlook for WAEMU reflects elevated political risks amid ongoing political transitions in several member countries, dampening business confidence and credit demand, alongside liquidity normalization.

However, amidst the negative shifts, there are pockets of optimism. Moody’s revised the outlook for Nigeria’s banking sector from stable to positive, citing expectations of higher interest rates boosting banks’ net interest margins, strengthening fees and commissions, and successful cost reduction initiatives. Additionally, a positive outlook was assigned to Tanzania’s banking sector, reflecting anticipated improvements in the operating environment due to the government’s structural reform agenda.

Meanwhile, the outlook for South Africa’s banking sector remains stable, balancing high macroeconomic and asset risks against solid financial metrics and prudent risk management practices. The introduction of a new bank resolution framework, including future issuance of loss-absorbing Flac instruments, is viewed as credit positive for depositors and senior creditors.

In Mauritius, Moody’s maintains a stable outlook owing to solid financial fundamentals, while Morocco’s banking sector outlook remains stable amidst a resilient economy and strong funding and liquidity positions. However, Tunisia’s banking sector outlook remains negative due to challenging operating conditions characterized by low economic growth, high inflation, and significant credit exposure to the heavily indebted sovereign.

Moody’s assessments provide valuable insights into the complex landscape of African banking sectors, offering stakeholders a comprehensive view of the risks and opportunities shaping the industry.
By: Delino Gayweh
Serrari Financial Analyst
February 14, 2024

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