French banks exit from Africa will create opportunities for local banks — Fitch Solution

Fitch Solution, an international rating agency, says French banks exit from Africa will create more opportunities for local banks.

The rating agency said their exit could potentially spur growth and competition for local banks.

“We see significant opportunities for local and regional banks in Africa despite the challenges. Some banking groups with pan-African ambitions should eventually gain enough scale to compete with long-established institutions. Increasing competition among pan-African banking groups should boost credit growth.

We expect credit growth to accelerate with the exit of French banks, albeit mainly in lower-risk segments, which will help preserve asset-quality metrics,“ the rating agency said.

This forecast comes against the backdrop of the Societe Generale (SG) decision to withdraw from the Ghanaian banking market and two other countries, notably Tunisia and Cameroon.

The rating agency said the challenges of French-owned banks in the African banking market that had occasioned their exit, including their inability to target certain segments of the economy due to their parent bank's conservative risk appetite.

Fitch also said French-owned banks followed more stringent loan classification and provisioning policies than locally owned banks, and this can act as a drag on growth and profitability.

The rating agency noted that stricter capital management, with higher buffers over local minimum regulatory requirements, has also constrained French-owned banks ability to lend in the African market.

The rating agency noted that French banks' exit from African retail and commercial banking was slightly credit-positive for them.

“They are refocusing on more mature retail banking markets in Europe and on activities such as insurance, leasing, and corporate and investment banking, where they can realise higher synergies. Their reduced presence in Africa also aligns better with their conservative risk appetite and efforts to optimise risk-weighted assets under European banking supervision, which is tighter than the local supervision for their African peers. Increasing economic uncertainties and heightened geopolitical tensions in some African countries are also influencing their strategic reassessment,” the rating agency said.

In the past six months, SG has also agreed to the sell off some other smaller African subsidiaries and launch a strategic review to dispose of its 52.34 per cent stake in Tunisia-based Union Internationale de Banques.

GNA