Opportunities And Risks For African Banks
BMI View: We are optimistic about the prospects for Sub-Saharan Africa banking sectors believing that asset growth will be strong in the years ahead, particularly in those countries where sector penetration remains low. However, asset expansion will not be without its challenges. High interest rates will continue to exclude many would-be borrowers and banks will continue to face difficulties in assessing credit-worthiness. The informal nature of many SSA economies as well as corporate governance weaknesses also present challenges.
The relatively small contribution that financial services make to the majority of African countries' economic output belies banks' important role. Strong private sector credit growth over recent years has helped to finance the expansion of local companies and has fuelled demand for consumer and capital goods. In many cases, domestic banks are the major holders of local government debt and are therefore important sources of budget deficit financing. Banks also often make up large proportions of regional stock exchanges and have therefore played a leading role, both directly and indirectly, in helping to develop African countries' capital markets.
We believe that strong headline economic growth rates and, in most cases, low levels of financial service penetration mean that banks and banking sectors are set for strong growth over the years ahead. We expect the countries in the bottom half of the table above - which is ordered from largest to smallest banking sector as a proportion of GDP - to all grow by 15 - 20% per year in nominal terms over the coming five years. The exception is Zimbabwe, where we believe slow economic growth and ill health for many of the countries' banks mean that asset growth will be far slower than its peers. The chart below shows the growth rate for assets, loans and deposits in year-on-year terms in June 2013.
|Banking Sector Growth Remains Strong|
|Africa - Asset, Credit and Deposit Growth In Banking Sectors Covered By BMI In June 2013, % y-o-y|