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Cape Town - Strategic investors are still looking to expand in sub-Sahara Africa, despite banks in the region tending to have highly speculative fundamental credit quality, according to Fitch.
The ratings agency added that South African banks are, however, an exception.
Fitch said the operating environment in sub-Sahara Africa is extremely tough. The outlook on eight of Fitch's 19 African sovereign ratings is negative and the regional economic outlook published by the International Monetary Fund (IMF) in April forecasts gross domestic product (GDP) growth in sub-Saharan Africa falling to 3% in 2016.
This is considerably below growth rates seen over the past decade and reflects lower commodity prices, faltering global GDP growth, weaker currencies and pressure on funding costs.
However, deals continue to flow.
In early 2016, Barclays announced the sale of its 62% stake in Barclays Africa Group (BAGL) [JSE:BGA], the holding company for its African subsidiaries, including South Africa's Absa Bank. An initial 12.2% stake in BAGL was sold on May 5.
Fitch also referred to media reports that SA's Public Investment Corporation (PIC), which already holds a minority stake, agreed to take an anchor stake in the stock being offloaded. Other SA and international investors also subscribed to the sale.
"We believe South African regulators will ensure that long-term and strategic investors will ultimately control BAGL and Absa, one of the country's domestic systemically important banks," said Fitch.
"Barclays is progressing with the sale of its African banking franchise, Nigeria's United Bank for Africa is diversifying into new countries and Morocco's BMCE Bank is increasing its stake in a sub-Saharan subsidiary. The move to create pan-African networks continues."
In April, United Bank for Africa announced that it will add another seven countries to its African coverage to reach a total of 25. BMCE recently increased its stake in Bank of Africa to 75% from 72.7%, which operates in 17 African countries.
Pan-African franchises make strategic sense for some of the largest African banks but they create additional challenges for bank regulators. Morocco's bank supervisors recently established a working relationship with the West African Economic and Monetary Union (WAEMU) and Central African Economic and Monetary Community (CEMAC).
They regularly exchange information that will assist in the consolidated supervision of Moroccan banks operating in Africa: BMCE Bank, Attijariwafa Bank and Groupe Banque Centrale Populaire," according to Fitch.
"Further cross-border cooperation with other sub-Saharan African regulators will be required to ensure that systemic risks do not build up and regulators have access to transparent and comparable information regarding consolidated risks, limits and positions," the ratings agency said.
"Prudential regulation is improving in various countries and several African markets are bringing standards more in line with international best practice. On corporate governance, much still needs to be done across many sub-Saharan countries."
