Banking M&A bringing sector consolidation across sub-Saharan Africa

Consolidation among banks in sub-Saharan Africa is creating larger banks with stronger credit profiles, with the trend set to continue as subdued economic growth will push regional finance industry players to seek growth via mergers and acquisitions, according to a leading rating agency. 

In a report for its clients, Moody’s said the ongoing wave of M&A among banks in sub-Saharan Africa is credit positive for bank creditors. 

"The number of small banks is declining, while the largest are growing steadily, producing banks with stronger credit profiles," said Akin Majekodunmi, Senior Credit Officer at Moody's. "We expect this trend to continue as regulators push for banking system consolidation, and subdued economic growth across much of the region causes banks to seek growth through mergers and acquisitions."

Moody’s said consolidation activity is likely to be greatest in East Africa, and Kenya and Tanzania in particular, where there are many small banks. 

In Angola, the agency expects an asset quality review by the regulator will lead to some consolidation over the next two years. In the rest of southern, west and central Africa only “limited activity” is expected over the next two years.

Consolidation is increasing economies of scale and improving income stability due to geographical and product diversification, Moody’s noted. “It is also reducing the number of very small, weak banks, making the aggregate credit profiles of African banking systems more resilient to the challenges in the operating environment.”