The new projections for the world economy, which is currently going through a difficult time, raise fears that the profitability of commercial banks operating in Africa could be at risk in the year 2020. In its rating of African banks published on 9 December 2019, the rating agency Moody's downgraded its outlook for the sector from “stable” to “negative.”

Moody’s forecast a timid global growth, partly due to the negative sentiment in the markets at the time. The agency also expected a less dynamic business environment to result in a decline in banking activity. Finally, various pressures on public finances posed a risk of increased credit with repayment problems.

However, countries that implemented some reforms could be resilient to such variations. For example, Ghana strengthened its banking sector at the end of 2018 with capital increases. Nigeria also experienced recorded waves of consolidation in the sector, as did Kenya. In the WAEMU zone, alignment with international standards was underway and in the CEMAC zone, restrictive measures were added as part of refinancing.

The impacts of covid-19 are putting a strain on the resilience of banks operating in Africa.
The current shocks that African economies are exposed to were not foreseen in 2019. In Nigeria, for example, the economy is strongly dependent on oil revenues, which accounts for 85% of export earnings and half of the government’s revenues, according to the latest analysis by S&P Global Ratings. However, local banks are exposed to nearly 30% of the oil products distribution sector, which itself depends on government subsidies.

For South Africa, Moody's downgraded both banks' rating and the country's sovereign rating. Macroeconomic conditions have deteriorated and, excluding the contingent liability of state-owned enterprises, the budget deficit is expected to reach a record level. In Morocco, cross-cutting sectors such as tourism, agriculture, and the automobile industry, which provide jobs for households holding nearly 30% of bank loans according to the Central Bank, are being impacted by the current stress.

The covid-19 and its consequences on the world's economic value chains, coupled with the oil war, are two disaster situations that no one had envisaged. For the time being, African countries, through fiscal measures for some and monetary measures for others, are trying to navigate through this storm. But no one knows what the implications might be if these crises were to continue.

Analysts believe that the prices of African oil and commodity will not recover overnight and that the impacts will be long-lasting. Also, the fact that many African countries are still trying to recover from previous external shock should further weaken them.

Banks are an important part of the economic architecture of these countries and sometimes have a comfortable cash position. But governments in Africa may not legitimately bail them out on a massive scale, as is the case in more developed economies.

Idriss Linge