Moody’s Investor Service, a global financial and investment analyst firm, predicted that bank customers, particularly in Nigeria, South Africa, and Kenya, will struggle to meet their loan obligations due to rising inflation in Africa’s three largest economies.
In a report published on Wednesday, Banks-Africa: Higher inflation weighs on the profitability of African banks, the rating agency estimated that customers who took loans from banks consider survival before thinking about repayment, which in turn affects the profitability of banks. lenders He expressed concern about the impact of the rising cost of living and inflation on the economies of the three countries under review.
“We expect banks’ exposure to the most inflation-sensitive sectors, such as households, to be a key factor affecting banks’ financing costs. “Higher inflation reduces the ability of borrowers to repay because income is needed against other competing and rising costs,” said one section of the report.
“Higher interest rates will also increase the debt burden of borrowers by increasing nominal payments. We expect high inflation and interest rates to increase supply requirements across all systems,” he added.
Moody’s further stated that “in general, we expect banks with the most exposure to household borrowers to face the highest commission costs. “While inflation reduces the real value of debt, household incomes may not grow fast enough to meet rising reimbursement costs.
However, the company predicts that Nigeria’s gross domestic product (GDP) will grow by .0 percent next year, while South Africa will. will grow by 1.5 percent, with Kenya’s forecast at 5.3 percent.
In response to high inflation, Moody’s said that Central Banks will continue to raise interest rates just as the Central Bank of Nigeria (CBN) did in the previous two Monetary Policy Committee. (MPC) meetings, where it first raised it by 11.5% to 13.0% and then to 14 .0%.
“Some central banks may tighten monetary policy to keep inflation under control and prevent the local currency from weakening, especially when US interest rates rise, which draws capital away from riskier African economies.
“Nigeria faces competition for long-term deposits. Compliance with Basel III liquidity requirements has resulted in an increase in price-sensitive term deposit products, which will gradually increase financing costs and moderate margin growth, as deposits are transferred at a higher interest rate,” the company noted.