Sub-Saharan Africa banking sector has strong regional growth prospects

London (Capital Markets in Africa):- Sub-Saharan Africa’s fast-expanding banking sector has strong potential to continue its recent growth trend, boosted by robust economies and widening financial inclusion, Moody’s Investors Service said in a report published today.

The report, entitled “Banking – Credit Trends in Sub-Saharan Africa”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

Investors are increasingly interested in Sub-Saharan African banks, whose assets have risen by more than 15% annually over the past four years.

“We expect Sub-Saharan banking systems to continue expanding strongly over the next 12 to 18 months, helped by robust economic growth and greater banking penetration on the back of the growing accessibility of mobile banking.” said Constantinos Kypreos, Vice-President, Senior Credit Officer, and a co-author of the report.

While the growth potential is strong across the sub-Saharan region, the banking systems will likely develop unevenly and feature varying degrees of volatility in credit quality. The report identifies a number of differentiating factors, including; (1) domestic operating environments, and more particularly the authorities’ ability to address volatility in capital flows and growth due to inflation or other macro-economic factors, (2) whether the systems are part of successful trading blocs, such as the East African Community, (3) whether an economy is dependent on commodity exports, such as Nigeria and Angola, and the extent to which the domestic government is positioned to support the economy during periods of low prices, (4) the existence of local or regional capital markets that allow banks to raise longer-term funding and help to develop the financial market, and (5) the banks’ ability to leverage mobile banking, enabling rapid banking sector growth and deepening financial inclusion, such as the Kenyan banks where 75% of adults now have a bank account following a fast adoption of mobile technologies.

At the same time, the banking sector in Sub-Saharan Africa faces other challenges over which government authorities have less immediate influence, often contributing 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.

“Where such weaknesses exist, they can have a negative impact on banking sector growth and compromise their credit profile,” Mr Kypreos adds. “Despite these challenges, the banks’ high capital buffers and strong earnings generating capacity support financial stability and provide room to support growth and loss-absorption.”

Subscribers can access this report via this link: https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1005103