Africa's banks pressured by bad loans: Moody's

ANKARA

Africa’s banks are under pressure from non-performing loans, credit agency Moody’s said on Tuesday.

“We expect the level of non-performing loans (NPLs), which we currently estimate at around 8-9 percent of gross loans, to rise further in 2016,” a note released by the agency read.

The main pressures on African banks stem from slowing growth, lower commodity prices and currency depreciation that are affecting many African economies, the note said.

“Combined with structural challenges, such as infrastructure bottlenecks, weak governance and fiscal imbalances, these factors will continue to threaten African banks' asset quality metrics,” Moody’s added, but claimed that the overall outlook for African banks is stable.

“Africa's banking system has a stable outlook for 2016 that reflects its resilient earnings, solid capital buffers and deposit-based funding set against rising asset quality risks,” the note said.

Constantinos Kypreos, a Moody's vice-president said: "While challenging operating conditions are leading to increased credit risks for African banks over the next 12 to 18 months, robust earnings, business opportunities stemming from greater financial inclusion and strong deposit bases will support the banks' credit profiles."

Another threat, however, to some African banks, is the low price of oil, Moody’s claims.

“The credit profile of oil-importing banking systems in North Africa will be more resilient as they benefit from lower oil prices and progress on the policy front, while sub-Saharan banks are more vulnerable to rising credit risks due to their increased fiscal challenges and weaker risk management practices,” the note said.

Moody’s said that mobile phone technology will continue to increase financial inclusion and improve the number of depositors at African banks. The share of adults holding a bank account with a formal African financial institution rose to 34 percent in 2014 from 24 percent in 2011, Moody’s added.