African Banks May Lose $48 Billion to Virus Rebound Risks

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

If risks go unchecked, multiple years of low profitability will likely follow, according to a report by 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% to 25% to restore returns due to shareholders to pre-crisis levels, it said.

The impact of the Covid-19 crisis was less severe on banks across the continent than initially expected as governments took steps to ease 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.

©2021 Bloomberg L.P.

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