African banks resilient despite challenges, EIB says

African banks face climate risks due to lending to governments and the private sector but have overall shown resilience in the face of challenges, the European Investment Bank said in a new report.

The EIB’s “Financing in Africa Survey 2023” provides a comprehensive financial conditions index for African banks, revealing that financial conditions have tightened over the last couple of years as interest rates rise and exchange rates weakened.

The EIB is a long-term lending institution of the European Union, owned by member states. It makes long-term finance available for sound investment in order to contribute towards EU policy goals.

Over the past decade, the EIB has provided more than EUR 13 billion to support private sector investment across Africa in partnership with African banks and financial institutions.

The survey, conducted in partnership with 33 leading banks across Africa, was unveiled at the EIB Southern Africa SME Banking and Microfinance Academy in Lusaka, Zambia. It brought together more than 100 banking leaders.

The survey showed how private borrowers are competing for bank loans with governments in Africa, and the extent to which governments crowd out private borrowers.

Resilience elevated

Despite these challenges, this year’s survey demonstrates the remarkable resilience of African banks.

It shows that higher interest rates and expanded business volumes have driven substantial profit growth. However, the cost of foreign currency and the expense associated with hard currency bond issuance remain persistent challenges.

“While non-performing loans continue to be a concern, there is a positive trend emerging with the reduction in corporate and SME loans under restructuring or subject to moratoria,” the report said.

“An impressive 90 percent of the surveyed Sub-Saharan African banks are actively investing in digital services and staff training. This commitment reflects the industry’s recognition of the transformative potential of banking digitalization, which is expected to drive innovation and efficiency.”

Debora Revoltella, EIB Chief Economist said, “Banking sector metrics have remained resilient in recent years and profitability is improving. However, banks remain concerned about the cost and availability of funding and are planning to tighten credit conditions, even though they retain an appetite to increase lending.”