International rating agency, Fitch, has announced that the declining global and domestic shocks would weaken the credit drivers for African banks in 2023.
Fitch believes that while these may increase operational environment risks, modest GDP growth, the absence of a major African economy entering a recession, along with banks’ demonstrated resilience over the last two years, will preclude a more serious negative scenario.
Adding that, “Weakened African sovereigns and significant contagion risks to banks play a large part in our deteriorating sector outlook for 2023.”
“Political risk will remain high and could bring further market uncertainty. Asset quality risks will return and be more prominent, with households and businesses continuing to be hit by high inflation, rising rates, currency depreciation and US dollar shortages.”
Fitch, however, only expects a slight rise in the ratio of problematic loans.
The agency also indicated that high commodity prices will support the operating environments of many African economies and banks, but a key risk to asset quality would come if there was a sharp decline in commodity prices caused by a global slowdown, especially with economic developments in China, a significant trading partner.
It was emphasized that mild increases in credit costs will be mitigated by rising interest rates and continued, desirable loan growth (above GDP growth) for banks.
According to a statement from Fitch, “Capitalisation, funding and liquidity remain comfortable, with the latter, in particular, underpinning banks’ Independent creditworthiness.
The biggest threat to the financial profile of African banks is sovereign debt turmoil.
“Sovereign downgrades could result in more bank rating downgrades in 2023.”
“We are most concerned about potential sovereign defaults with many African governments facing very high and increasing debt servicing burdens exacerbated by rising interest rates, US dollar strength and unfavourable external funding conditions. The Ghana debt restructuring will affect domestic as well as regional banks,” it added.
Source: The Independent Ghana