African banks may lose Sh5tr to virus rebound risks

Banks must now begin focusing on post-pandemic growth.

African banks need to improve operating efficiencies and mitigate other risks quickly to avoid a revenue slump of as much as Sh5.28 trillion ($48 billion) over the next three years.

If risks go unchecked, multiple years of low profitability will likely follow, according to a report by global Management consulting company McKinsey. “Lessons from the 2008 economic crisis suggest that, in times of crisis, speed is everything.”

Banks must now begin focusing on post-pandemic growth and driving down costs through technology.

McKinsey estimates lenders will need to increase efficiencies in their operations by at least 20 per cent to 25 per cent to restore returns due to shareholders to pre-crisis levels, it said.

The impact of the Covid-19 pandemic crisis was less severe on banks across the continent than initially expected as governments took steps to ease the strain on businesses and interest rates fell.

Lenders that aggressively built reserves to guard against souring loans in nations like South Africa and Kenya may see an improvement in results this year as provisioning levels relax.

“It is likely that banks in Morocco and Nigeria may need to further increase provisioning levels in 2021, as the current loan-loss provisions in those countries may not adequately cover the expected increase in bad debts,” McKinsey said.

Recently, the Central Bank of Kenya (CBK) ended the emergency measures that had allowed customers to restructure loans.  It said the end of extension and restructuring of loans will see standard procedures for loan classification and provisioning apply.

Since March last year, loans valued at Sh1.7 trillion, representing 57 per cent of the Kenyan banks’ loan book, had been restructured. 

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