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African banks failing coast to coast show spreading distress

Friday, October 21, 2016 - 20:41

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African banks are sinking deeper into trouble. Drowning in bad debt and swamped by slowing economies, more and more of the continent's lenders are starting to fail.

[JOHANNESBURG] African banks are sinking deeper into trouble. Drowning in bad debt and swamped by slowing economies, more and more of the continent's lenders are starting to fail.  The collapse of a Ugandan bank, said to be an acquisition target of Bob Diamond's Atlas Mara Ltd, is adding to woes stalking the industry from Mozambique to Nigeria. High interest rates, soaring levels of unpaid loans and low commodity prices are just some of the factors felling banks as growth across the world's poorest continent stutters.

Ugandan regulators on Thursday suspended the board of Crane Bank Ltd and took over operations because the lender was under-capitalized, days after trying to ward off a run on deposits. Nigerian regulators in July replaced the management of the country's eighth-largest bank. Kenya and Zambia both seized some of their smaller banks, Mozambique this month had to stabilize one of its lenders, while Democratic Republic of Congo had to step in for one of its biggest banks.

"We've been forecasting an African banking crisis since the beginning of this year," said Robert Besseling, a Johannesburg-based executive director at business-risk consultancy Exx Africa. "We're likely to see more banks fail in Nigeria. The Kenyan banking sector will have to consolidate and Ethiopia's will have to liberalize.

Angola is also struggling. Some Ghanaian banks have reported heavy losses. The other one to watch is the DRC, which has also seen some turbulence." The mounting issues faced by lenders in sub-Saharan Africa marks a turning point for the continent once lauded as the next big investment destination. That lured the likes of ex-Barclays Plc Chief Executive Officer Diamond to start London-based Atlas Mara, a business focused on buying African financial-services companies. He was following other lenders tapping into the region's young population, rising wealth and two decades of record growth.

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Crane, which has 46 branches, was taken over by the Bank of Uganda because it posed a risk to the country's financial system and threatened deposits, the central bank said. It comes at a time when growth is slowing, with Uganda expanding at 3.9 per cent in the second quarter from 5.4 per cent a year earlier.

"These banks were in a pretty high growth phase for about 10 years, so like any banking system in the world, you go through that credit cycle," said Ronak Gadhia, a research analyst at London-based Exotix Partners LLP. "When you see a slowdown in payments from government ministries and institutions, that has a pretty big knock-on in private sector. In Uganda, they were massively plugged into South Sudan. That might be an element as well."

The closely held lender Crane, controlled by one of Uganda's richest men, said in September it was looking for a strategic equity investor with a regional network after making losses in 2015. Atlas Mara valued the bank at US$250 million, while Crane Bank said it's worth US$300 million, the Nairobi-based East African newspaper reported on Oct 11, without saying where it got the information. Talks are at an early stage, a person familiar with the matter told Bloomberg on Oct 18, asking not to be identified because the discussions are private.

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