Sep 27

EIB Africa banking survey shows resilience in difficult environment

The European Investment Bank today published the “Financing in Africa Survey 2023,” providing unique insights into the evolving financial landscape across the African continent. This extensive analysis, conducted in partnership with 33 leading banks across Africa, details diverse challenges and confirms resilience of the African banking sector.

View the key findings

This year’s “Finance in Africa” report was unveiled at the EIB Southern Africa SME Banking and Microfinance Academy in Lusaka, Zambia, bringing together more than 100 banking leaders. 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.

Commenting on the findings, EIB Vice President Thomas Östros emphasized that “The Finance in Africa Survey 2023 underscores the critical importance of ensuring that African banks are equipped to support transformative private sector investment. The EIB remains dedicated to collaborating with our partners to address the challenges outlined in this report, driving sustainable financial growth in Africa.”

EIB Vice President Ambroise Fayolle said “The EIB’s first work in Africa dates back almost 60 years and we are now active in 52 countries across the continent. Lending to financial institutions is a key element of our support to private sector development and the analysis in our Finance in Africa report helps us to better understand what the real challenges are, drawing on our long-term engagement and relationships in local African markets.”

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.”

The report includes for the first time a financial conditions index created for Africa. The index reveal that financial conditions have tightened over the last couple of years as interest rates increase but exchange rates weakened. The complementary EIB severity of crowding out index, which captures the extent to which private borrowers are competing for bank loans with domestic governments, shows that crowding out pressures remain elevated.

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

An impressive 90% 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.

A dedicated analysis within the report highlights that companies led by women, particularly female-led firms, exhibit superior management practices and a greater propensity for innovation. This finding underscores the importance of fostering diversity in leadership within the African banking sector.

“Our analysis shows that well-managed enterprises are more likely to be led by women. Female-led firms tend to invest in innovation, export goods and services and offer employee training. Our survey of African banks also reveals that loans to female-led firms are more likely to be repaid.” added Debora Revoltella.

The survey also emphasizes that African banks remain exposed to physical climate risks due to both sovereign and industry lending. The report calls for sustainable financing practices to effectively mitigate these risks.