Moody's - South Africa (2022 Banking System Outlook - Negative outlook maintained, driven by challenging operating and macro conditions
Limassol, February 02, 2022 --
» Banking sector outlooks for Nigeria, Kenya and Egypt are stable; banking outlooks for Morocco and South Africa are negative
» Stable outlooks are supported by economic recoveries in the wake of the pandemic
Moody’s investors Service has announced the latest outlooks for banking sectors in Nigeria, South Africa, Kenya, Egypt and Morocco in the wake of the pandemic. Operating conditions vary across the continent and this is reflected in the different banking system outlooks published today.
“We have changed our outlook for the Nigerian banking sector to stable from negative to reflect our expectations of stronger economic activity over the coming 18 months, which will boost banks' business volumes and earnings, and help to protect their loan performance from further deterioration,” said Peter Mushangwe, Assistant Vice President-Analyst at Moody’s.
Kenya’s banking system was also assigned, for the first time, a stable outlook on expectations that a recovering economy will enable banks’ loan quality and profitability to rebound from weakened levels, while capital, funding and liquidity will remain strong. High problem loans are the main credit challenge facing Kenyan banks but these will drop closer to pre-pandemic levels over the next 12 to 18 months.
Moody’s maintains a stable outlook for Egypt's banking sector as continued infrastructure investments and robust spending will support economic growth, while initiatives to deepen financial inclusion will provide ample business opportunities for banks.
The outlooks for banking in South Africa and Morocco remain negative. South Africa’s sluggish economic growth, rising government debt and limited progress on economic reforms will weigh on banks’ credit profiles, largely through pressures on loan quality but also because of the banks’ large holdings of government bonds – accounting for around 17% of total banking assets – which links their credit profiles to that of the government. We nonetheless expect banks’ financial performance – specifically their liquidity, capital and profitability – to remain resilient and protect overall financial stability.
In Morocco, the outlook reflects a risk that the government could have less capacity to support local banks in case of need, as indicated by the negative outlook on the sovereign rating. In addition, Moody’s expects loan performance to deteriorate slightly due to the withdrawal of pandemic support measures and the reintroduction of some social restrictions in response to rising cases of the Omicron coronavirus variant.
To see the complete banking sector reports, click the link for each country: