African banks will remain exposed to domestic and global operating environment risks in 2025, Fitch Ratings has disclosed.
It pointed out in its African Banks Outlook 2025 report that while most countries are showing a good degree of resilience, a fall in commodity prices cannot be ruled out.
It added that reduced interest rates will likely underpin demand for credit and, combined with less volatile exchange rates, support confidence and investments.
Again, asset quality risks will also remain prominent, with households and businesses continuing to be hit by high inflation and interest rates.
Nevertheless, we assume a small reduction in impaired loans ratios due to loan growth, declining interest rates and lower inflation”, it alluded.
Continuing, the UK-based firm said most banks will be able to address asset quality risks through strong pre-impairment profits stemming from high interest rates, satisfactory loan growth, solid non-interest income – notably trading gains – and strong operating efficiency.
Performance will remain solid, but we expect it will drop slightly in those countries where lower interest rates will translate into lower yields on government securities. Capitalisation, funding and liquidity should remain comfortable in most markets”, it mentioned.
It concluded that sovereign debt distress remains a major risk to African banks’ financial profiles, with many sovereigns facing very high debt-servicing burdens. The average sovereign rating for African countries in which Fitch rates banks is ‘B’, and contagion risks to banks are significant.
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