Africa banks resilient in difficult environment


European Investment Bank

from ARNOLD MULENGA in Lusaka, Zambia
Zambia Bureau
LUSAKA, (CAJ News) – A MAJORITY, 90 percent, of Sub-Saharan African banks are actively investing in digital services and staff training.

This commitment reflects the industry’s recognition of the transformative potential of banking digitalisation, which is expected to drive innovation and efficiency.

This is among the findings of the Financing in Africa Survey 2023, by the European Investment Bank (EIB).

The analysis, conducted in partnership with 33 leading banks across Africa, details diverse challenges and confirms resilience of the continent’s banking sector.

This year’s report was unveiled at the EIB Southern Africa Small and Medium Enterprises Banking and Microfinance Academy in Lusaka, Zambia, bringing together more than 100 banking leaders.

The report includes for the first time a financial conditions index created for Africa.

The index reveals that financial conditions have tightened over the last couple of years as interest rates increased but exchange rates weakened.

The complementary EIB severity of crowding out index, which captures the extent to which private borrowers are competing for bank loans with domestic governments, shows that crowding out pressures remain elevated.

Debora Revoltella, EIB Chief Economist, said banking sector metrics have remained resilient in recent years and profitability is improving.

“However, banks remain concerned about the cost and availability of funding and are planning to tighten credit conditions, even though they retain an appetite to increase lending,” she said.

Despite these challenges, this year’s survey demonstrates the resilience of African banks. Higher interest rates and expanded business volumes have driven substantial profit growth.

However, the cost of foreign currency and the expense associated with hard currency bond issuance remain persistent challenges.

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

Over the past decade, EIB has provided more than EUR13 billion to support private sector investment across Africa, in partnership with African banks and financial institutions.

– CAJ News