Leading African national development banks (NDBs) can play a key financing role in supporting the SDGs, especially mobilizing concessional funding from large international development lenders and domestic private-sector investments, a report by Fitch says.
The international credit and finance rating agency in its recent report on the financial sustainability of African banks made the assertions after the financial profiles of ten leading national development banks (NDBs) in countries such as Nigeria, South Africa, Morocco, Namibia, Botswana, Rwanda and Uganda were analyzed against their potential to achieve financial sustainability and to deliver on policy objectives.
According to the report, the average annual earnings assets growth (YEAG) trajectory for these development banks in Africa places the development bank of Nigeria (DBN) on the top spot with a growth trajectory of 76 percent (based on a 2-year average, though) while its Bank of Industry (BoI) ranks fourth on the list with a 13 percent growth trajectory for the four year period. Similarly, Namibia’s development bank immediately follows as the second on the list with 35 percent while Uganda ranks next with a 26 per cent earnings asset growth trajectory. Moreover, South Africa’s IDC, DBSA and Land Bank all earn a place with -1 percent, 5 percent and 4 percent apiece.
The report also highlighted that African policymakers are pushing National Development Banks (NDBs) to function in a greater capacity in financing the United Nation’s ambitious 2030 Agenda for Sustainable Development Goals (SDGs) while stating that sovereign support remains a key rating consideration for national development banks in Africa; nevertheless, achieving financial sustainability is critical to playing a more substantial role.
African NDBs are state-owned policy banks mandated to pursue socio-economic objectives, including industrialization, export promotion, job creation and financial market development. But in Africa, these banks have long suffered from ineffective business models, weak asset quality, poor corporate governance and negative perceptions from market participants; Fitch revealed.
It also pointed that these NDBs have received more sovereign support due to a change in the political climate over the past decade, with many governments returning to state-led development policies and with development objectives more closely aligned with the implementation of the SDGs’ agenda. In recent times, several African NDBs were created or revived by governments, which recognized these banks’ potential as additional sources of financing and expertise in facilitating development goals.
To pursue rapid growth, Fitch, however, opined that these banks will secure more funding substantially from non-sovereign sources as it will put them under heightened scrutiny. In its assertions, it stated that financial sustainability is the next big challenge which requires the improvement of internal capital generation and diversification of cost-effective funding to achieve the business transformation strategies it pursued lately.