African Finance Sector Resilient Amid COVID-19 Challenges

Strategic Insights -

The COVID-19 pandemic has triggered unprecedented changes in business operations and accelerated digitalization trends in Africa. Despite its impact, the African finance sector has demonstrated remarkable resilience, with 78 leading banks and financial institutions survey by the European Investment Bank (EIB) showing stability in the sector. However, the pandemic has also highlighted future risks that could hinder financing for business growth, renewable energy, and recovery. African banks are embracing digitalization and scaling up green finance, with 80% considering climate risk for loans and 42% having staff focused on renewable energy financing.

Key Takeaways:

  • The COVID-19 pandemic has prompted major changes in how business is conducted in Africa, accelerating digitalization trends and unlocking new opportunities for African financial institutions to innovate and drive financial inclusion.
  • The African finance sector has remained stable, but private sector financing may recover slowly, with small business and micro-entrepreneurs being the hardest hit.
  • Nearly 50% of African banks are most concerned about the quality of existing assets, and more than 20% are most concerned about reduced demand for financing and increased risk of future lending.
  • African financial sectors have displayed remarkable resilience during the COVID-19 crisis, but lingering impacts may set back financing during the recovery.
  • Small firms and micro-entrepreneurs remain underserved and vulnerable to losing access to finance if lending recovers slowly, with 55-56% of African banks identifying credit history and collateral as major or severe constraints to financing smaller businesses.
  • African financial institutions are expanding their digital offering, with digitalization drive accelerated by the pandemic, which the banks believe will be permanent.
  • The survey reveals that African banks are increasingly aware of the need to address risks posed by climate change, and are beginning to take advantage of opportunities in green finance, with 54% of surveyed banks viewing climate as a strategic issue.
  • The EU Investment Bank has provided over EUR 5 billion in new financing to support over EUR 12 billion of transformational private and public investment across Africa.

Statistics:

  • 78 leading banks and financial institutions in Africa were surveyed by the European Investment Bank.
  • 54% of surveyed banks viewed climate as a strategic issue.
  • 42% of surveyed banks had staff working on climate-related opportunities.
  • 80% of surveyed banks considered climate risk for loans.
  • 55-56% of African banks identified credit history and collateral as major or severe constraints to financing smaller businesses.
  • EUR 5 billion of new financing was provided by the EIB to support EUR 12 billion of transformational private and public investment across Africa.
  • Almost 50% of African banks are most concerned about the quality of existing assets.
  • More than 20% of African banks are most concerned about reduced demand for financing and increased risk of future lending.

Sources:

  • The European Investment Bank (EIB)
  • Making Finance Work for Africa (MFW4A)
  • European Investment Bank Finance in Africa 2021 report
  • Abdelkader Benbrahim, Making Finance Work for Africa Partnership (MFW4A) Coordinator
  • Thomas Östros, European Investment Bank Vice President
  • APO Group
  • EIB website: www.EIB.org/press
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