NAIROBI, Kenya Dec 14-Global rating agency, Fitch Ratings has described the sector outlook for African banks in 2022 as neutral, with uncertain business conditions and Covid-19 risk constraining recovery.
The agency has predicted a faster rise in lending with most economies growing at the trend rate and banks gradually loosening stricter/pandemic-era underwriting standards.
“Our base case also considers risks to global growth, relatively high commodity prices, and still favorable external financing conditions,” the agency noted.
Further, Fitch noted significant uncertainty with Africa being particularly at risk from new Covid-19 variants, amid very low vaccination rates and governments’ limited fiscal space.
The agency said that if this risk materializes, it could change the outlook quite dramatically.
“Banks are likely to make mistakes in the pursuit of growth under prevailing operating conditions, which are fraught with challenges and uncertainty. We believe a return to normalization will be beyond 2022. Even excluding the serious threat of new variants, banks face the prospects of limited earnings growth, and, therefore, limited loss absorption capacity,” Mahin Dissanayake, Head of African Banks at Fitch said.
The pace of downgrades was noted to have significantly reduced in 2021 compared with the prior year.
‘The fast rebound in formal and informal economic activity in 2H20 and 2021, strong commodity prices, and the resilience of certain economic sectors and loan restructuring were seen to be helping the banks contain corporate bad debt,’ it added.
