Rating agencies warn of rising African debt risks

LONDON, Dec 9 (Reuters) - The surge in African debt levels
in the wake of the COVID-19 crisis is raising the risk of a
spate of sovereign defaults and ramping up bad loans on the
books of the continent's banks, two top credit rating agencies
warned on Wednesday.
Subdued growth and high spending are set to push Sub-Saharan
Africa's average debt as a percentage of gross domestic product
over 70% next year, a new report from Fitch estimated.
It is expected to reach 127% in Angola, 151% in Cabo Verde,
124% in the Republic of Congo, 110% in Mozambique and 138% in
already-defaulted Zambia. While it should fall in most of those
countries by 2022, the likes of South Africa, Uganda and Rwanda
are expected to see further 10 percentage point rises in their
debt levels.
"The surge in Sub-Saharan debt will raise concerns about
debt sustainability, liquidity pressures and greater risk of
sovereign default," Fitch's report said.
Angola, Republic of Congo, Gabon and Mozambique's lowly
'CCC' credit ratings meant they were at "elevated default risk".
It added that eight countries in the region will need to
spend at least 20% of their government revenues just to meet
their debt interest payments by 2022. For four countries that
ratio will top 30% this year and next year.
A separate report from Moody's also raised concerns about
the rising pressure on the African banking system due to the
pandemic.
"We expect non-performing loans (NPLs) to potentially double
from 2019 levels as payment holidays expire, while increased
provisioning needs, reduced business generation, and margin
pressure will erode banks' profitability," one of the firm's
analysts, Constantinos Kypreos, said.
The sovereign strains were a key issue too as banks'
creditworthiness was "inextricably linked" to the financial
strength of the government in the country they are based.
In Nigeria, Moody's estimated that problem loans would rise
to between 10%-12% of total loans compared to 6% in 2019, though
forbearance and restructurings would conceal the full extent of
deterioration.
In South Africa it is seen rising to over 7%-8% of loans, in
Ghana and Kenya it is already at 15.5% and 13.6% respectively
and in Angola it was above 32% at the start of the year.