Egypt and Morocco are the most resilient African states in their banking policies, Moody's Credit Rating said in a report out Tuesday.
According to the report "Banking - Africa: 2016 Outlook," Africa's banking system has a stable outlook for 2016 that reflects its resilient earnings, solid capital buffers and deposit-based funding set against rising asset quality risks.
"While challenging operating conditions are leading to increased credit risks for African banks over the next 12 to 18 months, robust earnings, business opportunities stemming from greater financial inclusion and strong deposit bases will support the banks' credit profiles," said Constantinos Kypreos, a Moody's Vice President - Senior Credit Officer and author of the report.
The credit profile of oil-importing banking systems in North Africa will be more resilient as they benefit from lower oil prices and progress on the policy front, while sub-Saharan banks are more vulnerable to rising credit risks due to their increased fiscal challenges and weaker risk management practices.
The main pressures stem from slowing growth, lower commodity prices and currency depreciation that are affecting many African economies. Combined with structural challenges, such as infrastructure bottlenecks, weak governance and fiscal imbalances, these factors will continue to threaten African banks' asset quality metrics. As such, we expect the level of non-performing loans (NPLs), which we currently estimate at around 8%-9% of gross loans, to rise further in 2016.
Rising credit risks will, however, be counterbalanced by still robust credit growth as well as the maintenance of solid capital buffers and deposit-based funding. Despite slowing economic expansion, credit growth in Africa is expected to exceed 10%-12% over 2016. This will be driven by real GDP growth that is still forecast to exceed 4%, making Africa one of the world's fastest growing regions.