US tariffs threaten to destabilise African banks amid global trade tensions, warns Moody's
Image: RON AI
Moody's Ratings has cautioned that though the US tariffs are expected to have few direct credit implications for African banks, the tariffs will have significant indirect negative implications through the financial markets' risk-transmission channel.
Earlier this month, the US government authorised a 90-day pause on the implementation of most new US tariffs, reverting to a universal rate of 10% on all almost all targeted countries, including African countries.
However, the Trump administration ramped up import tariffs on goods from China to 145% and the Chinese government retaliated with its own 125% tariffs on US imports, setting off a trade war between the world's two largest economies.
Moody's on Thursday said it expected the increase in tariffs after the 90-day pause is lifted to have few direct credit implications for African banks because the continent's trade with the US was slight, which will limit risk transmission.
Mik Kabeya, vice president and senior analyst at Moody's Ratings, said while their overall outlook for the African banking sector was unchanged, the tariffs will engender a more challenging macroeconomic outlook and greater uncertainty around asset prices and interest rates.
Consequently, Kabeya said the tariffs will likely have indirect negative implications for African banks' operating environment by significantly curbing global economic growth as businesses and consumers suspend or slow investment decisions.
Slower global growth ïs also expected to depress the prices of some commodities that African countries export.
Kabeya said reduced economic growth on the continent would negatively affect African banks' profitability and asset quality because it would weigh on their business lending activity and on borrowers' repayment capacity, leading to lower net interest income and fees and commission income, along with higher loan loss provisioning and problem loan formation.
'For Africa's banks, second-round effects of the macroeconomic fallout include the implications of China's lower economic growth and commodity price adjustments challenging the export sector,' Kabeya said.
'Given that China is the primary export market for Sub-Saharan African commodity exporters, China's reduced growth will modestly weigh on African banks' business generation as their export-oriented clients face reduced business activity.
'Low oil prices will also pose risks to banks' foreign currency liquidity since oil exports are a key source of foreign exchange earnings in several oil exporting African countries such as Nigeria and Angola. Crude oil prices have fallen significantly in April and will likely remain low but volatile this year.'
Separately, Kabeya said the tariffs will have significant indirect negative implications for African banks through the financial markets' risk-transmission channel.
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