Soaring household indebtedness, problems for SMEs and the growth in non-performing loans are causing problems for banks, but the pandemic also presents opportunities, he says Tom Minney
W.Here are banks after the Covid-19 pandemic? The full impact may not be felt until next year, when some loans go bad. Half-yearly results through June this year have been strong for some banks, despite the fact that economies in economies struggling before Covid-19, such as Tunisia, have announced profit warnings.
The impact of a widespread decline in GDP on major African economies is sure to hit the banking sector. The IMF is forecasting an 8% decline in South African GDP, the largest decline since 1985. Nigeria, Angola and other oil exporters have been hit by falling oil prices that have struggled to rise above $ 40 / barrel. Tourism revenues have declined in Tunisia, Egypt, and Kenya, but benefit from diversified economies.
Rising household debt and difficulties for small and medium-sized businesses are the biggest effects on bank revenues. Banks could also suffer from a lack of liquidity as investment flows leave emerging markets, but for many government and central bank inflows have helped offset this, at least for now. Central banks lowered interest rates and reserve requirements, which freed up more credit. It remains to be seen whether such an accommodation policy will be continued.
Still, the half-year results through June were encouraging for some. At the time African Business went to press, Standard Bank Group announced a record $ 3.2 billion in earnings for the six months to June, with customer deposits up 19%. The provision for bad loans was increased by 30%. Attijariwafa Bank in Morocco announced that net banking income for the second quarter was $ 1.4 billion, up 5.1% year over year.
In Egypt, CIB Bank’s half-year results showed net interest income rose 25% to US $ 773 million and pre-tax profit increased 2% to US $ 467 million compared to the first half of 2019, despite a huge burden of bad loans in $ 140 million. almost three times in the previous year.
Despite this relatively good news, the rating agency S & P Global lowered the credit ratings for some South African banks to BB- and for banks in Tunisia and Nigeria to B- at the beginning of this year.
On the way to recovery
Looking ahead, the longer-term effects of Covid-19 are likely to last three or four years after the 2008 global financial crisis. However, the leading African banks remain strong with a large supply of capital.
According to consultant McKinsey, they have great opportunities to use the crisis to improve. You can cut costs (4 to 5% of assets double the global average), use more agency banking and hire new employees.
The pandemic is also accelerating decision-making and leading to greater cybersecurity and faster digitization, including streamlining lending to low-risk customers. Banks can also expand their customer base. In Morocco, for example, 4.3 million households had access to social assistance through the banking system.
If the right drug is distributed and the banks work hard to recover, they could become stronger than they were before the virus. Banks across Africa will undoubtedly be affected, but most will not require ventilators or life support.