INTO AFRICA October Edition: Banking in Africa: The current status

LAGOS, Nigeria, Capital Markets in Africa: Welcome to the October edition of INTO AFRICA, a publication with fresh insight into Africa’s emerging capital markets. In this edition, we have a special focus on the Banking Sector in Africa, with an overview of the current trends and opportunities in the Sector. Please download by clicking: INTO AFRICA PUBLICATION: OCTOBER  EDITION. 

The banking sectors in African countries have been on an upward path for nearly a decade posting record growth rates while at the same time undergoing radical restructuring and stabilisation. African banks lending activity tends to focus on the financing of large corporate clients and governments and therefore may alleviate downward pressure on the banks’ credit profiles and vulnerability to macroeconomic headwinds. SMEs, low and middle-class individuals too often remain formally unbanked, so potentials for growth remain on an upward trajectory.

While Africa’s fast-expanding banking sector has strong potential to continue its recent growth trend, boosted by robust economies and widening financial inclusion, the growth output is positive across the continent so the banking systems will likely develop unequally. These will depend on macroeconomic fundamentals and levels of capital markets development as well as mobile banking adaptation and penetration.

Having said that, the banking sector in Africa faces challenges which often contributes to the volatility and unpredictability of the operating environment. Such obstacles to growth include fiscal vulnerability, domestic security risks, corruption, high poverty rates and infrastructure bottlenecks. These could have a negative impact on banking sector growth and compromise their credit profile. In spite of these challenges, the banks’ high capital buffers and strong earnings generating capacity support financial stability and provide room to support growth and loss-absorption.