TGB Regional Banking Monitor: Sub-Saharan Africa — Q2 2024

The regional picture

The first half of 2024 was still a tightening phase for much of the region. Standard Bank Group reported in its interim results that central banks increased interest rates in Angola, Kenya, Malawi, Nigeria, Tanzania, Uganda and Zambia in the first half of 2024. It also noted that East Africa had recently recorded some of the lowest inflation outcomes on the continent, while West Africa had seen inflation edge higher. The group said many sub-Saharan African countries faced difficulties linked to political uncertainty and external imbalances, and that their currencies weakened.

By the third quarter the direction had changed in Kenya, South Africa and Ghana. The Central Bank of Kenya held its rate at 13.00% on 5 June 2024 and then lowered it to 12.75% on 6 August 2024. That was a cut of 25bp. The South African Reserve Bank kept its repo rate at 8.25% on 18 July 2024, with two members preferring a cut, and then reduced it by 25bp to 8% on 19 September 2024. The Bank of Ghana kept its policy rate at 29% at its July meeting and lowered it by 200bp to 27.0% in September 2024. The Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO), which sets policy for the West African Economic and Monetary Union (WAEMU), held its main rate at 3.50% on both 4 June and 11 September 2024.

The common thread in the three cuts was falling inflation. Kenyan inflation was 4.3% in July 2024, below the mid-point of the target range; South African headline inflation eased to 4.4% in August, a three-year low; and Ghanaian headline inflation declined to 20.4% in August from 22.8% in June. The WAEMU moved the other way, with inflation rising to 4.1% in the second quarter of 2024 from 2.9% in the previous quarter.

Policy decisions, June to September 2024

Source: Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO), Communiqué de presse n°02/2024 de la réunion ordinaire du Comité de Politique Monétaire tenue le 4 juin 2024, 4 June 2024; Central Bank of Kenya, Weekly Bulletin, 7 June 2024, 7 June 2024; South African Reserve Bank, Statement of the Monetary Policy Committee, July 2024, 18 July 2024; Bank of Ghana, Monetary Policy Committee press release (119th meeting), 26 July 2024, 26 July 2024; Central Bank of Kenya, Press release: Monetary Policy Committee meeting (6 August 2024), 6 August 2024; Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO), Communiqué de presse n°03/2024 de la réunion ordinaire du Comité de Politique Monétaire tenue le 11 septembre 2024, 11 September 2024; South African Reserve Bank, Statement of the Monetary Policy Committee, September 2024, 19 September 2024; Bank of Ghana, Monetary Policy Committee press release (120th meeting), September 2024, 27 September 2024.

Banking-system indicators are published on different calendars, so the country sections mix reference dates: South African system data are averages for 2024 to date (to March 2024), Kenyan data refer to June 2024, Ghanaian data to June and August 2024, and Nigerian bank data to the half year to June 2024.

South Africa: a 25bp cut, a resilient system

The South African Reserve Bank kept the repo rate unchanged at 8.25% at its July 2024 meeting; four members preferred an unchanged stance and two preferred a reduction of 25bp. At that point the most recent headline inflation print, for May, was 5.2%, and the Bank projected 2024 headline inflation at 4.9%, against 5.1% at the previous meeting. By September headline inflation had eased to 4.4% in August, a three-year low, and the Monetary Policy Committee reduced the policy rate by 25bp to 8% per annum, with effect from 20 September. Members had considered an unchanged stance, a 25bp cut and a 50bp cut before reaching consensus on 25bp. The Bank's forecast sees rates moving towards neutral in 2025, stabilising slightly above 7%. It assessed the risks to the inflation outlook as balanced, having judged them to be on the upside in July.

Growth remains the weak point. Real GDP grew 0.4% quarter on quarter in the second quarter of 2024, against the 0.6% the Bank's July forecast had anticipated. The Bank nonetheless assessed the risks to the growth outlook as balanced. The Bank flagged investment, which had contracted for four consecutive quarters, as a particular concern. Surveyed inflation expectations were still 4.8% for both 2025 and 2026, in the top half of the target range. The banking system entered the easing cycle with solid buffers. The SARB's June 2024 Financial Stability Review, drawing on Prudential Authority data averaged over 2024 to date (to March 2024), put the total capital adequacy ratio at 17.37% and the common equity tier 1 ratio at 13.38%, against 17.36% and 13.43% in 2023. The liquidity coverage ratio averaged 149.36%, against 150.58% in 2023. The five largest banks held 89.72% of banking-sector assets.

Credit quality has deteriorated gradually. Impaired advances averaged R296.32 billion in 2024 to March, against R276.77 billion in 2023, an increase of about 7.1%. Impaired advances were 5.37% of gross loans and advances, up from 5.17% in 2023 and 4.55% in 2022. The smoothed return on equity was 14.66%, against 14.84% in 2023. The review identified the key domestic risks as the weak fiscal position, the high level of government debt, rising debt-service costs and the financial sector's high exposure to the sovereign. It nonetheless assessed the financial system as resilient and expected that resilience to be sustained over the forecast period to May 2025.

The sovereign link runs through bond prices. The yield on the R2035 government bond rose from about 11.4% at the start of 2024 to a peak of about 12.5% in April before falling to around 10.3% by mid-September. The SARB noted that the rand had strengthened during the year more than most peer currencies, while long-term yields had moderated and spreads over US rates had narrowed. For banks with large holdings of government bonds, the fall in yields since April supports the value of those holdings. According to the SARB's June review, South Africa had to address all 22 items in its Financial Action Task Force action plan by no later than January 2025 if it was to be removed from the greylist after its next assessment. After the United Kingdom classified South Africa as a high-risk third country, the European Securities and Markets Authority derecognised JSE Clear as a qualifying central counterparty, and the Bank of England's run-off regime for JSE Clear is due to end on 28 March 2025, with the possibility of extension.

Two structural changes strengthen the safety net. The Corporation for Deposit Insurance became operational on 1 April 2024, protecting qualifying depositors for up to R100 000 of their deposits in qualifying products if their bank fails. A positive cycle-neutral countercyclical capital buffer of 1% will be phased in over 12 months from 1 January 2025 and fully implemented by 31 December 2025.

At bank level, Standard Bank Group reported headline earnings of R22.0 billion and a return on equity of 18.5% for the six months to 30 June 2024, against 18.9% a year earlier. Its banking cost-to-income ratio was 49.7%, against 49.9% a year earlier, and it ended the period with a common equity tier 1 ratio of 13.5%. The group said its South African franchise delivered double-digit earnings growth supported by improving credit trends, while its Africa Regions business contributed 41% of group headline earnings. For Standard Bank, the rest of the continent therefore supplied a large share of group profit.

Nigeria: inflation easing from a high level, capital being raised

Nigerian inflation eased in August but remained far above the rates in the other economies covered here. The National Bureau of Statistics reported that headline inflation eased to 32.15% in August 2024 from 33.40% in July. That was still 6.35 percentage points higher than the 25.80% recorded in August 2023. Prices were still rising quickly from month to month: the month-on-month headline rate was 2.22% in August 2024. Food inflation was 37.52% year on year in August 2024, and core inflation, which excludes farm produce and energy, was 27.58%, against 21.15% a year earlier. The rise in core inflation means that price pressure has spread beyond food and energy.

Earnings at the listed banking group GTCO were strong. Guaranty Trust Holding Company (GTCO) reported profit before tax of N1.004 trillion for the half year to June 2024, which it described as the first time a Nigerian financial institution had crossed N1 trillion in profit. The figure was 206.6% higher than the N327.4 billion recorded in the corresponding period to June 2023. GTCO's net loan book rose 25.5% from N2.48 trillion at December 2023 to N3.11 trillion in June 2024, while deposit liabilities grew 39.8% from N7.55 trillion to N10.55 trillion. Net loans were therefore equal to about 29% of deposits at June 2024.

The group's capital adequacy ratio closed at 21.0% in June 2024. Stage 3 loans under IFRS 9 were 4.3%, against 4.2% in December 2023, and the cost of risk improved to 1.6% from 4.5%. It reported a pre-tax return on average equity of 103.6% and a cost-to-income ratio of 16.7%. Total assets reached N14.5 trillion and shareholders' funds N2.4 trillion.

GTCO also went to the market for new equity. Its offer of 9,000,000,000 new ordinary shares at N44.50 per share opened on 15 July 2024, with a closing date of 12 August 2024. The offer document put expected net proceeds at N392.49 billion, of which N370.00 billion, or 94.3%, was earmarked for the recapitalisation of GTBank Nigeria, with an estimated completion period of six months. The planned use of almost all the proceeds for the Nigerian bank shows that recapitalising the domestic banking subsidiary was the purpose of the offer.

Kenya: easing begins as credit contracts in foreign currency

The Central Bank of Kenya's Monetary Policy Committee kept the Central Bank Rate at 13.00% on 5 June 2024, noting that earlier measures had lowered overall inflation to 5.1% in May 2024. It also noted then that non-food non-fuel inflation had remained sticky and that interest rates in the major economies were likely to stay higher for longer. On 6 August it lowered the rate to 12.75%, concluding that there was scope for a gradual easing of the stance while ensuring continued exchange-rate stability. Overall inflation had declined to 4.3% in July 2024 from 4.6% in June, and non-food non-fuel inflation had eased to 3.3% from 3.4%. The Bank expected overall inflation to stay below the mid-point of the target range in the near term, helped by a stable exchange rate, lower food prices from expected harvests and stable fuel prices. Real GDP grew 5.0% in the first quarter of 2024, and the Bank projected growth of 5.4% for 2024, against 5.6% in 2023. Foreign exchange reserves stood at USD 7,303 million, or 3.78 months of import cover. The external position improved: the current account deficit was estimated at 3.7% of GDP in the 12 months to June 2024, down from 4.2% a year earlier, and remittances rose 12.9% to USD 4,536 million.

Credit quality is the weak spot in an otherwise stable system. The Bank described the banking sector as stable and resilient, with strong liquidity and capital adequacy ratios. The ratio of gross non-performing loans to gross loans was nonetheless 16.3% in June 2024, against 16.1% in April. The Bank attributed most of that 0.2 percentage point rise to a 1.5% fall in gross loans, compared with a smaller 0.7% fall in non-performing loans. The ratio therefore rose because the loan book shrank, not because the stock of bad loans grew.

Lending growth is weak. Growth in commercial bank lending to the private sector slowed to 4.0% in June 2024 from 4.5% in May, partly reflecting valuation effects on foreign-currency loans after the shilling appreciated. Local-currency loans grew 10.2%, while foreign-currency loans, about 26% of the total, contracted by 13.3%. Respondents to the Bank's surveys before the August meeting were concerned about the impact of the recent protests on economic activity and the high cost of doing business. On the fiscal side, the first supplementary budget for FY2024/25 was expected to lower the deficit from 5.6% of GDP in FY2023/24 to 4.3%. The Committee said it would meet again in October 2024.

Ghana: profits recovering, credit risk rising

The Bank of Ghana kept its policy rate at 29% at its July 2024 meeting. Headline inflation had eased to 22.8% in June 2024 from 23.1% in May and 25.0% in April. By the September meeting it had fallen to 20.4% in August, after five consecutive monthly declines totalling 5.4 percentage points since the first quarter, and the Monetary Policy Committee lowered the Monetary Policy Rate by 200bp to 27.0%. The Bank forecast that inflation would ease towards its 13-17% range target for 2024 and back towards the 6-10% medium-term target by the end of 2025. Real GDP grew 6.9% in the second quarter of 2024, against 2.5% a year earlier and 4.7% in the first quarter. Provisional data put the overall fiscal deficit for the first half of 2024 at 2.0% of GDP, against a budget target of 2.7%. Gross international reserves rose from US$6.87 billion at end-June 2024 to US$7.50 billion at end-August, equal to 3.4 months of import cover. The cedi depreciated 24.3% against the US dollar from the start of the year to 25 September 2024, but by a slower 7.1% in the second half of the year to that date.

The Bank of Ghana said banking-sector performance in the first half of 2024 pointed to continued recovery from the impact of the Domestic Debt Exchange Programme. Total banking assets grew 33.3% to GH¢323.1 billion at end-June 2024, against 21.2% growth a year earlier. The capital adequacy ratio adjusted for reliefs was unchanged at 14.3% between June 2023 and June 2024. Without reliefs it was 10.6% in June 2024, up from 7.4% a year earlier. The 3.7 percentage point gap between the two measures shows how much of the sector's reported solvency still rests on regulatory relief. In August 2024 the ratio without reliefs was 10.3%, against 7.5% a year earlier, and with reliefs 13.8%, against 14.2%. The Bank said the consistent rebound in profits, adherence to recapitalisation plans and strict credit underwriting would help keep banks on the path to full recovery.

Asset quality is moving the wrong way. The industry's NPL ratio was 24.1% in June 2024, up from 18.7% in June 2023. That is a rise of 5.4 percentage points in a year. It reached 24.3% in August 2024, against 20.0% in August 2023, which the Bank attributed to increased defaults from large borrowers, calling elevated credit risk the primary concern for the sector's outlook. Private sector credit grew 17.6% in nominal terms in June 2024 but contracted 4.2% in real terms. By August nominal growth had reached 21.7%, equal to real growth of 1.1%. Bank lending rates have barely moved: the average lending rate to households and firms was 30.79% in August 2024, against 31.78% a year earlier, while the interbank rate rose to 28.84% from 26.59%. With the policy rate at 27.0% and inflation at 20.4%, the policy rate was 6.6 percentage points above headline inflation after the September cut.

WAEMU: rates on hold as inflation rises

The BCEAO kept its main policy rate at 3.50% and its marginal lending rate at 5.50% on 11 September 2024, levels in force since 16 December 2023. Inflation in the union reached 4.1% in the second quarter of 2024, against 2.9% in the previous quarter. In June the Bank had expected inflation of 2.9% for 2024; by September it forecast 3.7%, the same as in 2023, with a return to the 1-3% target range in 2025. Real GDP grew 5.3% in the second quarter of 2024, growth for the year was forecast at 5.9%, down from the 6.1% the Bank had expected in June, and credit to the economy rose 5.3% year on year at end-June 2024. That compared with credit growth of 5.0% at end-March 2024. With inflation above target but expected to fall back in 2025, the hold leaves the union's real policy rate slightly negative for now.

Cross-country comparison

Sub-Saharan Africa banking monitor: policy, inflation and system indicators (reference dates in brackets)

Source: South African Reserve Bank, Statement of the Monetary Policy Committee, September 2024, 19 September 2024; South African Reserve Bank, Financial Stability Review, First edition 2024 (June 2024), 5 June 2024; Central Bank of Kenya, Press release: Monetary Policy Committee meeting (6 August 2024), 6 August 2024; Bank of Ghana, Monetary Policy Committee press release (120th meeting), September 2024, 27 September 2024; National Bureau of Statistics (Nigeria), Consumer Price Index, August 2024, 30 September 2024; Guaranty Trust Holding Company Plc, GTCO Plc releases 2024 half year audited results, 30 September 2024; Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO), Communiqué de presse n°03/2024 de la réunion ordinaire du Comité de Politique Monétaire tenue le 11 septembre 2024, 11 September 2024.

The gap between policy rates and the latest headline inflation varied widely: it was 3.6 percentage points in South Africa, 8.45 in Kenya and 6.6 in Ghana, while in the WAEMU inflation of 4.1% exceeded the 3.50% policy rate. On these measures Kenya kept the tightest real stance after its August cut. Asset quality separates the systems more sharply than capital does, although national definitions differ: Ghana's NPL ratio of 24.3% and Kenya's of 16.3% compare with impaired advances of 5.37% of gross loans in South Africa.

Risks and outlook

In Ghana, rising defaults among large borrowers and a capital ratio of 10.3% without reliefs leave the sector exposed if the recovery falters. In Kenya, the risk is that a shrinking loan book keeps the NPL ratio high even if the stock of bad loans does not grow. South African banks face the SARB's concern over the weak fiscal position and their high exposure to the sovereign, alongside a growth outturn of 0.4% in the second quarter of 2024. In Nigeria, inflation remained very high, with headline inflation at 32.15% and core inflation at 27.58% in August 2024. In the WAEMU, the BCEAO expected inflation to return to its 1-3% target range in 2025, which would turn the real policy rate positive at the current 3.50%.

Primary sources: Bank of Ghana, Monetary Policy Committee press release (120th meeting), September 2024, 27 September 2024; Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO), Communiqué de presse n°03/2024 de la réunion ordinaire du Comité de Politique Monétaire tenue le 11 septembre 2024, 11 September 2024; South African Reserve Bank, Statement of the Monetary Policy Committee, September 2024, 19 September 2024; Central Bank of Kenya, Press release: Monetary Policy Committee meeting (6 August 2024), 6 August 2024; Bank of Ghana, Monetary Policy Committee press release (119th meeting), 26 July 2024, 26 July 2024; National Bureau of Statistics (Nigeria), Consumer Price Index, August 2024, 30 September 2024; Guaranty Trust Holding Company Plc (filed with Nigerian Exchange Group), Offer for subscription of 9,000,000,000 ordinary shares: statutory advertisement, 15 July 2024; Standard Bank Group Limited, Standard Bank Group results announcement for the six months ended 30 June 2024, 15 August 2024; Central Bank of Kenya, Weekly Bulletin, 7 June 2024, 7 June 2024; South African Reserve Bank, Statement of the Monetary Policy Committee, July 2024, 18 July 2024; Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO), Communiqué de presse n°02/2024 de la réunion ordinaire du Comité de Politique Monétaire tenue le 4 juin 2024, 4 June 2024; South African Reserve Bank, Financial Stability Review, First edition 2024 (June 2024), 5 June 2024; Guaranty Trust Holding Company Plc, GTCO Plc releases 2024 half year audited results, 30 September 2024.