The Coronavirus pandemic and the sharp oil price drop have already led to portfolio outflows from emerging markets, including Africa, and will exacerbate the slowdown in economic growth at a time when government debt levels have increased to over 50% of GDP on average across the continent.
In such an environment, banks’ financial performance – asset quality, profitability, and foreign currency liquidity – will likely suffer. Banks specifically in oil-exporting countries, due to their heavy exposure to the oil & gas sector, primarily Nigeria, will face renewed asset quality pressures. Partly dollarized banking systems like Angola, DRC, Nigeria will also be faced with renewed foreign currency liquidity pressures if the portfolio outflows persist.
Despite these challenges, our baseline scenario assumes a significant global disruption but not an extensive and prolonged slump, and with this in mind we believe several African banking sectors can navigate through this crisis without jeopardising financial stability.
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