Fitch downgrade SSA Banks outlook, cites rising regulatory risk in Nigeria. Fitch Ratings www.fitchratings.com revised its sector outlook for sub-Saharan African (SSA) banks to negative from stable in 2019.
Fitch explained that the revised position was due to the build-up of operating environment risks, particularly in the two largest economies, South Africa and Nigeria.
The rating firm further stressed the outlook captures weak gross domestic product (GDP) growth, policy uncertainty, and stress in key sectors.
It also include a generally weak corporate sector and rising regulatory risks in Nigeria, to a lesser extent in Angola and previously in Kenya.
According to Fitch, the negative outlook does not imply a severe systemic stress in any of the markets, but that risks are skewed to the downside.
The report reads that Bank financial metrics will be affected by slow business growth.
This exclude Kenya and Nigeria, where Fitch expects a pick-up in lending, but will remain satisfactory thanks to strong earnings.
“We expect a continuing ‘crowding-out’ of private sector lending due to investments in high yielding government securities”, Fitch stated in the report.
The firm noted that Banks are also dealing with large stocks of legacy problem loans, which imply that loan impairment charges (LICs) will remain high.
“There are more downside risks to asset quality than in 2019, but asset quality is unlikely to deteriorate rapidly due to high recoveries, restructuring and write-offs”, it added.
Fitch stated that it expects banks to remain well capitalised, excluding in Angola, providing a good buffer against rising downside risks.
“Increased capital requirements and the move to Basel III (in Nigeria) are positive for banking system stability”, Fitch highlighted.
By Ogochukwu Ndubuisi