February 29, 2024/Fitch Ratings
Rated African banking groups have mixed, but in most cases limited, exposure to geopolitical and macroeconomic risks in west Africa stemming from Burkina Faso, Mali and Niger’s intention to leave the Economic Community of West African States (ECOWAS), Fitch Ratings says.
Fitch rates five banking groups with subsidiaries in one or more of the three countries: Attijariwafa Bank (AWB; ‘BB’/Stable), Bank of Africa (BOA; ‘BB’/Stable), United Bank for Africa (UBA; ‘B-’/Stable), Ecobank Transnational Incorporated (ETI; ‘B-’/Stable) and Oragroup (CCC/Rating Watch Evolving). The risks are captured in the ratings but a severe deterioration in the countries’ operating conditions, such as a sovereign default that imposes substantial losses on creditors, could lead to capital and rating pressures at the most exposed banking groups.
There is limited public disclosure on the size of the subsidiaries in affected countries, but we estimate that on an aggregate basis it does not exceed 15% of total assets at any group. Some banking groups will also have some exposure through other subsidiaries’ holdings of the affected sovereigns’ fixed-income securities.
Burkina Faso, Mali and Niger’s exit from ECOWAS could have a significant adverse impact on their economies. It could also have a spillover effect elsewhere in the region but this would probably be limited given the three countries’ small economies and modest regional trade. Burkina Faso, Mali and Niger together contribute about 8% to ECOWAS GDP.
Higher trade tariffs leading to higher inflation, and disruptions to supply chains and capital flows could weaken the operating environment for banks in these countries. This could gradually lead to pressures on loan quality, leading to higher loan impairment charges. However, the five rated banking groups affected should be able to absorb the impact with robust pre-impairment operating profits generated in other jurisdictions.
Niger and Burkina Faso recently hinted at the possibility of leaving the West African Economic and Monetary Union (WAEMU), whose members use the West African CFA franc, pegged to the euro. This is not Fitch’s base case but it represents a much larger risk to the five rated banking groups than the exit from ECOWAS as it would significantly increase foreign-exchange and interest rate risks at a consolidated level.
Although not expected by Fitch, an escalation of tensions leading to new sanctions being imposed on Burkina Faso, Mali or Niger could impede the affected sovereigns’ ability to service their debt. Niger has been under stringent sanctions since its military coup in July 2023 and the sovereign had bond payment arrears of XOF317 billion (USD524 million) on 26 February. The regional central bank, BCEAO, has provided forbearance to the WAEMU banking sector, temporarily allowing banks to treat the bonds as performing.
ECOWAS recently announced that it would lift economic sanctions on Niger, which could enable the country to clear its accumulated arrears, as happened with Mali, which had similar sanctions lifted in July 2022. Mali’s sovereign creditors, including banks, suffered only small net present value (NPV) losses as a result.
Although Fitch does not expect new sanctions that would lead to large NPV losses for sovereign creditors of Burkina Faso, Mali or Niger, such a scenario could lead to ETI breaching its capital requirements given its weak buffers, and deepen Oragroup’s existing capital breach. It could also complicate Oragroup’s acquisition and capital replenishment by Burkina Faso-based Vista Group Holdings. AWB, BOA and UBA are less vulnerable to such a scenario due to their lower exposure to the three markets, greater headroom above minimum capital requirements and ability to raise core capital.
