Global rating agency predicts stable outlook for African banks

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Global rating agency Moody’s has predicted a stable outlook for banks in Nigeria and other parts of Africa.

A report released by Moody’s, which is headquartered in New York, United States, said “while growth across Africa is recovering, it is still below potential. Our stable outlook for African banks reflects expectations of a slight acceleration in growth and stricter regulation that supports financial stability; but risks are titled to the downside”.

In the report, the credit rating agency noted that the risks to the operating environment relate to the rising US interest rates leading to capital outflows across emerging markets. The rising interest rates in conjunction with rising government debt and currency depreciation, could significantly harm African banks’ loan quality and access to foreign currency.

However, as a result of improved foreign-currency liquidity and rising loan quality, the report noted that Nigeria has a stable outlook. It was predicted that financial institutions operating in Africa would show financial resilience.

The report published by Moody’s also projected a mild recovery in economic growth, which is driven by relatively stable commodity prices, robust domestic demand and domestic policy adjustments.

The published report revealed that “stricter regulation and better supervision will also help address legacy governance issues and support banks’ financial stability. We view Egyptian, Moroccan and Mauritius rated banks as most resilient”.

Moody’s also noted that “banks’ credit profiles remain sensitive to such developments, including through inter-linkages with their sovereigns, particularly given their large holdings of government securities”.

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