The outlook for Nigeria’s banking sector and for banks in Africa will remain negative into 2021 amid difficult operating conditions and sovereign pressures straining banks’ credit profiles, Moody’s Investors Service stated in its recent report.
Specifically, it predicted that South African and Nigerian banks would face acute macro challenges, while loan quality and liquidity would be the main issues for Angolan and Tunisian banks, respectively.
On the other hand, it stated that East African and Francophone West African banks are better placed than Central African banks to weather the pandemic, given their more resilient economies, with Egyptian banks facing the least impact.
Overall, banks’ financial stability in the region would be broadly maintained.
“Stable local currency deposit funding, high liquidity in local currency, good capital buffers, and gradual improvements in risk management will help to contain banks’ risk over the next 12 to 18 month,” Moody’s added.
According to the rating agency, loan quality, profitability, and foreign currency liquidity would be the main stress points next year for banks in the continent, although stable funding and capital could limit the impact.
It noted in the report that difficult operating conditions were expected to persist for African sovereigns, with the resulting pressures also weighing on banks’ credit profiles.
Furthermore, it stated that the economic slowdown in the continent would hamper banks’ performance, stating that governments’ ability to provide support remains impaired.
Furthermore, banks will remain heavily invested in government securities, which further reinforces the close credit linkages between banks and their respective sovereigns, Moody’s added.
“Our outlook for African banks remains negative as we head into 2021, with the difficult operating conditions and banks’ close links to their sovereigns being the key driving factors,” Senior Vice President at Moody’s Investors Service, Constantinos Kypreos said.
Kypreos added: “Heading into next year, we expect nonperforming loans (NPLs) to potentially double from 2019 levels as payment holidays expire, while increased provisioning needs, reduced business generation, and margin pressure will erode banks’ profitability.”