December 6, 2017 / 1:13 PM / a year ago

Fitch: Sub-Saharan Africa Banks - Recovery Distant when Sovereigns are Weak

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Fitch 2018 Outlook: Sub-Saharan Africa Banks here LONDON, December 06 (Fitch) Bank ratings in sub-Saharan Africa (SSA) continue to be under pressure from sovereign weakness, with 22% of rated banks' Long-Term Issuer Default Ratings (IDRs) on Negative Outlook compared with 23% this time last year, Fitch Ratings says. The share of Negative Outlooks appears unchanged but masks some important credit events in SSA in 2017, including the downgrade of major South African bank ratings to 'BB+' and the revision of their Outlooks to Stable and the revision of Outlooks on major Nigerian banks to Negative. The rating actions mirror similar actions on the sovereigns. Bank risk remains elevated due to weak economic and business environments and this is putting pressure on earnings, liquidity, asset quality and capitalisation. Signs of recovery are fragile, in our view, with banks sensitive to even modest economic shocks. We forecast slow private sector credit growth, reflecting mainly modest GDP growth in SSA on an aggregate of 2.9% for 2018 (1.9% in 2017). Moreover, banks are yet to fully recover from an exceptionally weak 2016 and remain risk- averse. Asset quality is expected to worsen, albeit more moderately compared with 2016/17 although variations throughout the region can be considerable. High single borrower concentrations, typical of the region, expose many banks to potentially sizeable losses in the event of default. Even prime corporates can face difficulties given the volatility of the operating environments and loan restructuring is frequent. Reported impaired loan ratios would be far higher in several countries if restructuring, notably to oil-related borrowers, had not taken place. The recent stabilisation of commodity prices could provide respite to some economies, but we remain cautious on loans to the oil and gas sector. Concentrated industry exposure is also a key risk. Low loan growth in 2018 and a likely rise in impairments may lead to pressure on profitability. In some countries, high-yielding government securities are helping banks boost to margins. A renewed squeeze in foreign-currency (FX) liquidity is a major risk for SSA banks. Commodity-dependent countries have seen reserves fall significantly, making it difficult for banks to access FX to satisfy customers' demands as well as raising questions about the authorities' ability to support banks' FX obligations if needed. In this environment, we believe refinancing risks for banks are high. Negative investor sentiment towards emerging markets means that FX debt issuance will remain more costly and inaccessible for many smaller banks. We expect banks to issue additional debt in their local markets. SSA banks remain adequately capitalised for their ratings but buffers are narrowing. Those countries experiencing a rapid rise in non-performing loans may see some banks breaching regulatory capital requirements. Banks are also facing higher prudential capital requirements (or minimum capital levels). Several countries are likely to move to Basel II/III in 2018. Furthermore, IFRS 9 will alter the way loan loss provisions are established. We expect additional provisions to be required, negatively impacting banks' ability to retain earnings and build up capital. Most bank ratings in SSA are in the 'B' range, indicating highly speculative credit quality and material default risk. The only bank we rate at investment-grade is in Mauritius. The report "Fitch 2018 Outlook: Sub-Saharan Africa Banks" is available at or by clicking on the link above. 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