Economic recovery will be subdued and fragile
Growth in 2022 will be largely in line with pre-pandemic levels, but insufficient to recoup output losses from the pandemic. Pandemic scarring will be significant, reflecting the continent’s weak capacity to absorb shocks. Low vaccination rates and heavy reliance on commodity exports pose additional risks. Median real GDP growth will be 5.1% in Sub-Saharan Africa

Higher sovereign debt tightens links with banks
Subdued economic growth and persistent spending pressures will keep government debt burdens well above pre-pandemic levels. Debt affordability challenges will mount for governments less able to access cheap financing. High volumes of sovereign debt held by Egyptian, Angolan, Ghanaian, Kenyan and South African banks links their credit profiles with sovereign creditworthiness

Forbearance phase-out will weaken asset quality
Gradual removal of forbearance measures for borrowers will moderately increase loan delinquencies across Africa, particularly in countries where stocks of rescheduled and restructured loans are high, such as Nigeria and Kenya. However, higher oil prices will support Nigerian borrowers, and high loan loss reserves provide a sizeable buffer in Kenya

Capital and profitability provide a shield
Capital will remain stable. Roll-out of stricter Basel capital requirements will be gradual and uneven, with banks in South Africa, Morocco and Mauritius leading the way. Recovering profitability will also provide a loss-absorbing buffer as operating income gradually improves (amid a gradual rise in interest rates), costs stabiliseand loan-loss provisions stay high

New technologies will support business growth
Digital services will increase bank revenues by deepening financial inclusion and widening revenues from existing customers. The adoption of these technologies, which accelerated with the pandemic, will lower costs. Growing cybersecurity risks will increase operational and legal costs, however. Kenyan banks will remain most advanced in mobile banking and collaboration with financial technology companies (fintechs)

Environmental and social risks are moderate
Banks in Nigeria are the most exposed to carbon transition risks, primarily through their sizeable oil and gas lending (27% of total loans). African banks’ focus on affluent clients moderates their exposure to social risks stemming from pandemic fatigue, economic scarring and limited vaccine access

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