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African banks' profitability under pressure amid weakened economic growth

The banking sector in Africa faces increased pressure on asset quality and weak operating conditions as COVID-19 pandemic disrupts key sectors

January 25, 2021 | Sana Louahidi

The socio-economic impacts of COVID-19 have led to contraction of the economy in Africa. The real gross domestic product (GDP) of Africa is projected to fall to -2.6% in 2020. Africa is predicted to endure GDP losses amounting to between $145.5 billion and $189.7 billion by the end of 2020. The region is projected to witness a slight recovery to reach 3.7% in 2021. Before the onset of the pandemic, GDP growth was estimated to reach $2.76 trillion. However, the region may still endure losses of up to $47 billion. The economic recession has affected many countries in the region especially those that have poor healthcare systems in place, as well as economies relying on tourism, international trade and exports, in addition to countries with increasing debt and dependence on international financial flows.

In East Africa, the economy is driven by wider diversification and lower dependence on primary goods. Compared to other regions, economic growth is expected to remain steady with strong growth of 5.2% in 2019 and drop to 1.2% amid the pandemic

In 2020. In comparison, the Southern Africa region’s economy endured a deeper recession with a projected drop of -4.9%. This slump is impacted by the drop in commodity prices. West Africa is expected to drop to -2% in 2020, with Nigeria’s GDP reaching -4.4% affected by the drop in oil prices.

For non-resource intensive African countries such as Kenya, Ethiopia, and Senegal, economic growth remains resilient with a projected increase of 0.6% in 2020. It is driven by the countries’ diversified economic structure and strong public investment. As for Africa’s largest economies including South Africa, Nigeria, Morocco, Egypt, and Algeria, they are expected to witness an overall contraction except Egypt which is expected to remain positive but decreased from 5.6% in 2019 to 3.5% in 2020.

In terms of inflation, the region has seen an increase by more than 9% in the first half of the year. This ...

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Keywords:Gdp, Asset Quality, Economic Growth, Npl, Profitability, Covid-19