NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, November 7, 2016

Africa’s many small and under-capitalized banks, laden with bad debt, are inflicting more pain on already embattled economies.

Regulators may have no choice but to force lenders to consolidate or close. A third of Nigeria’s 21 banks may be under-capitalized. Much smaller Uganda has 25 banks and last month suffered one collapse. Kenya has had three failures since August last year and with 40 lenders, boasts almost one bank per million people. Angola’s 30 or so banks may need to boost reserves by $4 billion, while a Mozambican lender was rescued by the central bank in September. Ghana is telling banks to combine and raise funds through the stock market.

“The consequences of inaction will be disastrous,” said Robert Besseling, a Johannesburg-based executive director at business-risk consultancy Exx Africa. “Uncontrolled bank failures pose significant contagion risks to other banks, state-owned enterprises and private businesses.”