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African banks remain steady despite turbulent environment

Although displaying resilience, the report warns that African banks remain exposed to physical climate risks due to both sovereign and industry lending. (Image source: Adobe Stock)

The European Investment Bank (EIB) has indicated that banking sector metrics have remained resilient in recent years with profitability improving

The organisation unveiled the findings in its Financing in Africa Survey 2023 which it unveiled at the EIB Southern Africa SME Banking and Microfinance Academy in Zambia. The report, available online, provides insights into the evolving financial landscape of the African continent and was conducted in partnership with 33 banks. It details resilience the banking sector has displayed against the challenges lined against it but notes that banks remain concerned about the cost and availability of funding and are planning to tighten credit conditions. According to Debora Revoltella, EIB chief economist, they are, however, retaining an appetite to increase lending. 

A financial conditions index that was created for Africa for the first time in the report reveals that financial conditions have tightened over the last few years as interest rates increased but exchange rates weakened. Meanwhile, the EIB severity of crowding out index indicates that crowding out pressures remain elevated. 

Yet, despite these challenges, the EIB has reported the “remarkable resilience” African banks have displayed with higher interest rates and expanded business volumes driving substantial profit growth. Although the cost of foreign currency and the expense associated with hard currency bond issuance remain persistent challenges. 

Non-performing loans continue to be a concern, the EIB states, but there is a positive trend emerging with the reduction in corporate and SME loans under restructuring or subject to moratoria. 

Furthermore, 90% of the surveyed sub-Saharan banks are investing in digital services and staff training, reflecting an industry recognition of the transformative potential of banking digitalisation. Within this, companies led by women tend to exhibit superior management practices and a greater propensity for innovation.

EIB vice president, Thomas Östros, emphasised, “The Finance in Africa Survey 2023 underscores the critical importance of ensuring that African banks are equipped to support transformative private sector investment. The EIB remains dedicated to collaborating with our partners to address the challenges outlined in this report, driving sustainable financial growth in Africa.”

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