TGB Regional Banking Monitor: Sub-Saharan Africa — Q2 2025

Quarter Snapshot

Sub-Saharan Africa's banking sector navigated a divergent quarter in Q2 2025: accelerating economic growth in West and East African frontier markets contrasted with persistent credit stress in Nigeria and Kenya, whilst South Africa resumed its monetary easing cycle amid inflation dipping below the lower band of its target. Ethiopia's banking liberalisation reached a historic inflection point as the National Bank of Ethiopia finalised the framework permitting foreign bank entry, ending decades of exclusion of foreign banks from the sector. The BCEAO cut its key policy rate, effective 16 June 2025, for the first time since 2020, as WAEMU inflation eased to 2.3% in the first quarter.

Regional Overview

The second quarter of 2025 crystallised two competing narratives across Sub-Saharan Africa's banking landscape. In the region's faster-growing frontier economies, monetary policy was loosening with intention: the BCEAO cut its minimum bid rate 25 basis points to 3.25% (effective 16 June 2025) in response to WAEMU inflation falling to 2.3%, whilst Kenya's Central Bank executed its fifth and sixth consecutive rate reductions, bringing the Central Bank Rate from 10.75% at the start of the quarter to 9.75% by June. In South Africa, the South African Reserve Bank lowered its repo rate to 7.25% with effect from 30 May 2025 — the fourth reduction since September 2024 — with headline inflation at 2.8%, below the 3% floor of its target band.

The countervailing narrative centred on credit stress. Kenya's gross non-performing loan ratio stood at 17.6% in June 2025, unchanged from April (CBK). In Nigeria, the banking-sector NPL ratio, about 5.2% at end-2024 according to Agusto & Co., was expected to rise further as COVID-era regulatory forbearance was wound down. Ghana's banking system carried the highest NPL burden in the survey — 21.8% at end-2024, rising to 23.1% by June 2025 — which the Bank of Ghana moved to address through a plan, announced in June 2025, to cap banks' NPL ratios at 10% by December 2026.

Against this backdrop, two structural developments defined the quarter's policy architecture. In Ethiopia, the enactment of the Banking Business Proclamation 1360/2025, with final directives published on 25 June 2025, formally opened the country's long-protected banking market to foreign bank subsidiaries, branches, and minority shareholdings in domestic institutions. Simultaneously, Nigeria's CBN recapitalisation programme — requiring banks to raise minimum paid-up capital by up to tenfold before the March 2026 deadline — continued, with banks having raised about N2.5 trillion by July 2025, according to Agusto & Co. Collectively, these developments signal a region in accelerating structural transition, even as short-term credit quality headwinds persist across several major banking systems.

Macroeconomic Conditions

Growth momentum remained robust across much of the region in Q2 2025, though inflation differentials created sharply divergent operating environments for banks. Nigeria recorded GDP expansion of 4.23% year-on-year — the fastest since Q2 2021 — led by industry (up 7.45%), with crude oil output averaging 1.68 million barrels per day, while services grew 3.94% and agriculture 2.82%. Ghana accelerated to 6.3% YoY growth in Q2 2025 (up from a revised 5.7% in Q2 2024), with the services sector expanding by 9.9%, whilst the Ghana cedi appreciated by roughly 50% against the US dollar during the quarter (Bank of Ghana end-March and end-June rates), supported by a record current account surplus driven by gold and cocoa exports, and inflation fell from 18.4% in May to 13.7% in June 2025. Kenya posted steady 5.0% growth in Q2 2025, compared with 4.9% in the first quarter. South Africa's economy expanded 0.8% quarter-on-quarter in Q2 2025 (0.6% YoY), after 0.1% growth in Q1. Ethiopia's government estimated real GDP growth of 9.2% for FY 2024/25.

Foreign exchange conditions diverged markedly. Ghana's cedi strengthened sharply in Q2, which the Bank of Ghana attributed to strong external sector performance and increased reserve accumulation. The South African rand recovered over the quarter after an early-April sell-off. Nigeria's naira demonstrated relative stability compared with the extreme volatility of 2023–2024. In Tanzania, foreign exchange reserves rose to about USD 6 billion at end-June 2025, supported by gold and other exports, and the shilling strengthened (Bank of Tanzania).

Banking Sector Performance

At the regional aggregate level, Sub-Saharan Africa's banking sector presented a picture of asset growth juxtaposed with credit quality fragmentation in Q2 2025. Ghana's banking sector total assets reached GHS 384.3 billion by June 2025, according to Bank of Ghana data. In Tanzania, credit to the private sector continued to grow strongly.

Asset quality remained the dominant sector-level risk factor. Kenya's gross NPL ratio rose from 16.4% in Q4 2024 to 17.2% in February 2025 and 17.6% in April, where it remained in June 2025 (CBK). However, the weighted average gross NPL ratio of listed banks was lower, at 13.6% in H1 2025, according to Cytonn. Kenya's private sector credit growth reversed from contraction — posting -1.4% in December 2024 — to positive territory at +2.0% in May 2025, an early signal that the CBK's easing cycle was beginning to transmit into the real economy. Nigeria's NPL ratio, about 5.2% at end-2024 according to Agusto & Co., was projected to rise further in 2025 as COVID-era forbearance was unwound (Agusto & Co. projected about 6.9% for end-2025).

Ghana's banking sector remained in an elevated NPL regime inherited from the 2022–2023 domestic debt crisis, with the ratio at 21.8% at end-2024. The Bank of Ghana's plan, announced in June 2025, to cap NPL ratios at 10% by December 2026 provided a structural target, but execution risk remains significant given the size of the loan book impairment and the ongoing burden of legacy domestically restructured obligations. Financial soundness indicators, however, improved: the Bank of Ghana reported improved solvency, liquidity, profitability and efficiency in the first half of 2025. In South Africa, banks' capital adequacy ratios remained robust, according to the SARB's First Edition 2025 Financial Stability Review.

Country-by-Country Snapshot

Nigeria

Nigeria's GDP growth accelerated to 4.23% in Q2 2025, with crude oil output averaging 1.68 million barrels per day. The banking sector's overriding story, however, remained the recapitalisation programme: banks had raised about N2.5 trillion in fresh capital by July 2025 (Agusto & Co.), with the March 2026 deadline concentrating activity, while the unwinding of legacy COVID forbearance was expected to push the NPL ratio further above the 5% prudential threshold, to about 6.9% by end-2025 (Agusto & Co.). The CBN held its MPR at 27.5% through Q2, with a cash reserve ratio of 50% for commercial banks; on 23 September 2025 it cut the MPR to 27.0% and the CRR to 45%.

South Africa

The SARB's fourth rate cut of the cycle — bringing the repo rate to 7.25% with a 5:1 majority on 29 May — took cumulative easing since September 2024 to 100 basis points. Capital adequacy ratios remained robust.

Kenya

Kenya's industry-wide NPL ratio stood at 17.6% in June 2025, unchanged from April (CBK). The tightening cycle had taken the Central Bank Rate to a peak of 13% in February 2024, and private sector credit growth contracted in late 2024. The CBK's aggressive easing in the quarter — a cumulative 100 basis points through April and June meetings — began to bear early fruit, with private sector credit growth recovering to +2.0% by May 2025. The CBK's Financial Stability Report, published in September 2025, said a May 2025 stress test found the sector resilient in the baseline, but that under a severe credit-risk scenario six banks might not meet the 10.5% minimum core capital ratio by December 2025. The broader macroeconomic backdrop remained supportive, with FX reserves of about USD 10.8 billion (4.75 months of import cover) cited by the CBK in June 2025.

Ghana

Ghana's GDP growth accelerated to 6.3% year-on-year in Q2 2025, with the services sector expanding 9.9%, while inflation fell sharply as the cedi appreciated by roughly 50% against the US dollar over the quarter, supported by a record current account surplus driven by gold and cocoa exports. The banking sector's asset base continued to grow nominally, with banking sector assets reaching GHS 384.3 billion by June 2025. The Bank of Ghana's June 2025 NPL reduction plan — targeting a cut from 21.8% to 10% by December 2026 — is a demanding credit quality target, and its execution will test banks' provisioning buffers and capital adequacy through to end-2026. The BoG held its rate at 28.0% through Q2, having raised it 100 basis points in March, though the disinflation trajectory and cedi strength created conditions for an easing pivot that subsequently materialised from July 2025.

Ethiopia

Q2 2025 brought a major regulatory change to Ethiopia's banking sector. The National Bank of Ethiopia published the final directives implementing Banking Business Proclamation 1360/2025 on 25 June 2025, formally permitting foreign bank subsidiaries, branches, and minority shareholdings in domestic institutions — ending decades in which foreign banks were barred from the market. Incumbent institutions, led by the state-owned Commercial Bank of Ethiopia alongside established private banks such as Awash, Dashen, and Bank of Abyssinia, now face the prospect of foreign competition. The NBE had also issued a directive requiring banks to prepare recovery plans (SBB/93/2025) in May 2025, and a proposed $700 million World Bank Financial Sector Strengthening Project is in preparation.

Côte d'Ivoire

In Côte d'Ivoire, the WAEMU's largest economy, the banking sector reported an NPL ratio of about 6.9% and a Tier 1 capital ratio of 12.9%. The BCEAO's 25-basis-point rate cut effective 16 June 2025 — its first cut since 2020 — lowered the cost of central bank refinancing for Ivorian banks. Credit growth had decelerated from a 16.2% peak to 11.5% at end-2024.

Regulatory and Policy Developments

Q2 2025 brought major regulatory developments in Ethiopia and Nigeria, alongside monetary easing in several jurisdictions.

• Nigeria — CBN Recapitalisation Programme (ongoing through March 2026): The CBN's programme lifting minimum paid-up capital requirements by up to tenfold continued; banks had raised about N2.5 trillion by July 2025, according to Agusto & Co. Only paid-up share capital and share premium qualify toward the threshold. Eight banks had met the new minimum thresholds by 31 July 2025, according to Agusto & Co.; by 23 September, CBN Governor Olayemi Cardoso put the number at 14. The 31 March 2026 deadline remained in place.
• Nigeria — PAPSS Circular (28 April 2025): The CBN issued a circular reviewing the documentation requirements for Pan-African Payment and Settlement System (PAPSS) transactions in Nigeria.
• Ethiopia — Banking Business Proclamation 1360/2025 (approved by parliament in December 2024; final directives 25 June 2025): Opened Ethiopia's banking sector to foreign bank subsidiaries, branches, and shareholdings in domestic banks. Directive SBB/94/2025 specifies licensing requirements. This ends decades of exclusivity for domestic institutions.
• Ethiopia — NBE Proclamation 1359/2025: Empowers the NBE as a Resolution Authority for financial institutions, provides for a National Credit Bureau, and strengthens prompt corrective action powers.
• Ethiopia — Directive SBB/93/2025 (Recovery Plans, May 2025): mandatory recovery plan requirements for banks. A proposed $700 million World Bank Financial Sector Strengthening Project lists the NBE, CBE and Development Bank of Ethiopia as implementing agencies.
• Kenya — CBK rate cuts (April 8 and June 2025): The CBK cut its Central Bank Rate to 10.00% in April (–75bps) and further to 9.75% in June (–25bps), citing inflation comfortably within the 2.5–7.5% target band and the need to support bank lending to the private sector. Cumulative easing reached 325 basis points from the 13.00% peak, with the first cut delivered in August 2024.
• Ghana — NPL Reduction Measures (exposure draft June 2025; final notice August 2025): Bank of Ghana Notice BG/GOV/SEC/2025/23 requires banks' NPL ratios not to exceed 10% by the end of December 2026, with dividend and lending restrictions from 1 January 2027 for those in breach; the industry ratio was 21.8% at end-2024 and 23.1% in June 2025.
• BCEAO — Rate Cut (announced 4 June; effective 16 June 2025): The BCEAO reduced its main refinancing rate from 3.50% to 3.25% and the marginal lending facility from 5.50% to 5.25%, with reserve requirements held at 3%. The BCEAO cited WAEMU inflation of 2.3% in Q1 2025, below the 3% upper limit of its 1–3% target range, helped by improved market supply and lower import prices, particularly for energy.
• South Africa — SARB May 2025 Rate Cut: The Monetary Policy Committee cut the repo rate 25 basis points to 7.25% on 29 May 2025 (effective 30 May), with a 5:1 majority in favour. The decision reflected inflation at 2.8% — the second consecutive month below 3% — alongside contained core inflation at 3.0%. The cut was the fourth since September 2024, taking cumulative easing to 100 basis points.

Risk Monitor

Outlook

The trajectory for Sub-Saharan Africa's banking sector over the remainder of 2025 is broadly constructive, though conditioned on the resolution of three intersecting dynamics. First, credit quality normalisation: in both Kenya and Ghana, the peak of NPL ratios appears to have been reached, or is close to being reached, by mid-2025 — but the path of improvement will be measured in quarters rather than months, constrained by the depth of provisioning deficits and the pace of economic recovery in affected borrower segments. Nigeria's banking sector will continue to absorb the reclassification of previously restructured COVID-era loans, with NPL ratios likely to remain above the 5% prudential threshold until the recapitalisation programme's capital buffers provide sufficient coverage.

Second, the monetary easing cycle is accelerating across most of the survey. South Africa's SARB, Kenya's CBK, Ghana's BoG (from July 2025), and the BCEAO are all in active or incipient easing modes. Cumulatively, lower policy rates will compress short-term asset yields, moderate NIMs, and encourage a shift toward credit-led revenue. Banks with strong retail franchises — particularly in South Africa, Côte d'Ivoire, and Tanzania — are best positioned to capture the volume uplift from falling lending rates.

Third, the structural transformation dimension — above all in Ethiopia and Nigeria — will generate near-term transition costs but medium-term system benefits. Ethiopia's foreign banking liberalisation is likely to remain a dominant theme through 2026 as initial licences are processed, capital flows respond, and incumbent banks reconfigure their competitive positioning. Nigeria's recapitalisation programme, due for completion by 31 March 2026, is intended to give the country's banks a larger capital base. In aggregate, Sub-Saharan Africa's banking sector enters the second half of 2025 in a phase of challenging but visible transition: credit stress peaking, monetary conditions easing, structural reform deepening, and growth strong in several surveyed markets, including Ghana, Kenya, Nigeria and Ethiopia, though weak in South Africa.