Faith in Africa’s financial industry

• Survey shows 52% of banks positive about the future

There is confidence in Africa’s economic outlook for the next three years despite threats and uncertainties such as inflation, recession and food insecurity, a survey has found. Deloitte Africa presented its findings on Monday at a summit in Lomé, Togo, culled from the second African financial industry barometer.

There is confidence in Africa’s economic outlook for the next three years despite current threats and uncertainties such as inflation, recession and food insecurity, a survey has found.

Deloitte Africa presented its findings on Monday at a summit in Lomé, Togo, culled from the second African financial industry barometer, a pan-African survey of the continent’s financial institutions, prepared in collaboration with the Africa financial industry summit.

It collects information from 60 participants belonging to different banks, insurance companies and “other financial institutions” including private equity funds, mobile money and development finance institutions.

Deloitte Africa risk adviser Adama Aristide Ouattara said the barometer highlights industry attitudes towards evolving business models, the regulatory landscape, inflationary pressures, emerging risks, and the progress towards digital innovation and sustainable finance.

“The diversity of our participants represents an additional guarantee of diversity and impact of our study on the African financial industry,” Ouattara said. “The size represents important information in our study to understand their [financial institutions’] impact on the African financial industry, as well as their scope of action on African territory.”

The survey shows that 52% of banks have confidence in the continent’s economic outlook for the coming three years, 33% have a stable outlook and 15% a negative one.

Insurance companies have lower confidence in the economic outlook of the next three years with only 50% remaining positive. The other 50% is evenly divided between stable and a negative outlook.

Ouattara said confidence is mainly supported by the expected effect of the African Continental Free Trade Area (AfCFTA) on Africa’s financial industry. About 65% of respondents, up from 2021’s 59%, placed a lot of emphasis on this.

Effective from January 1 2021, after its ratification by 43 (80%) of the continent’s 55 countries that have deposited their instruments, the AfCFTA represents the largest potential free trade area in the world with a market of 1.3-billion people and GDP of $3.4-trillion.

Survey findings also show that the African financial industry grew in its “attractivity” for banks and insurance companies. This is mainly reflected in these institutions accelerating investments in key areas such as human capital, client experience and IT infrastructure.

The survey shows that factors weighing negatively on banks, and thus raising their vigilance on emerging risk factors, include cybersecurity, operational risks and financial risk.

There is also a mixed perception of digital assets. Ouattara said while crypto assets are seen as opportunities, there is low enthusiasm for central bank digital currencies.

“Only 33% of respondents expect central banks’ digital currency to have a significant impact on financial inclusion and only 34 said central banks’ digital currency will have a significant impact on access to financial systems,” he said.

Even though there is some recognition of the regulator’s effort in the transposition of international standards, real areas of improvement exist on emerging topics such as digital finance and personal data protection, he said.

“While respondents recognise regulators’ efforts on [drafting and implementing] regulations against money laundering and terrorist financing; strong prudential standards in the banking industry; as well as strong following of accounting regulations [the IFRS], more work needs to be done on the regulation of digital financial services such as fintechs, insurtechs, regetechs,” he said.

“Personal data protection regulations and financial markets regulations following the Organisation of Securities Commissions [an association of organisations that regulate the world’s securities and futures markets] need to be followed,” Ouattara said.

The survey showed there is interest in standard green finance instruments and that there have been positive movements in financing the decarbonisation of economies, increased participation in the Carbon Disclosure Project and the financing of renewable energy/energy efficiency.

“Solar energy is the most sought-after investment by financial institutions over the next five years. In general, they also plan to invest more in renewable energy [hydroelectric, biomass, geothermal and wind] than in gas, nuclear, oil and coal,” Ouattara said.

CONFIDENCE MAINLY SUPPORTED BY THE EXPECTED EFFECT OF THE AFRICAN CONTINENTAL FREE TRADE AREA ON THE FINANCIAL INDUSTRY

SOLAR ENERGY [WILL BE] THE MOST SOUGHT-AFTER INVESTMENT BY FINANCIAL INSTITUTIONS OVER THE NEXT FIVE YEARS