Moody’s: U.S. import tariffs credit negative for African banks

African banks are facing credit negative implications due to the U.S. import tariffs, but Moody's suggests that these risks are manageable. The 90-day pause on tariffs is expected to have limited direct credit implications for African banks due to the relatively low trade volume between the African continent and the U.S. However, indirect implications through macroeconomic fallout and financial markets channels could impact the banks. With global economic growth expected to be fragile in 2025, African banks may experience reduced profitability and challenges in maintaining asset quality. The report also points out the potential impact of slower growth in China on African banks' ability to generate new business. As China is a significant market for commodity exporters in sub-Saharan Africa, any decrease in economic growth in China could lead to lower export opportunities for African exporters and subsequently affect the trade-related business generated by banks. Moreover, the reliance on short-term foreign currency funding poses a risk to some African banks, especially those operating in countries that are major oil exporters. A significant fall in oil prices due to tariffs could constrain foreign currency liquidity, impacting banks that heavily depend on short-term foreign currency funding. Banking institutions with longer-term foreign currency funding are likely to navigate this environment better. Additionally, the report highlights the expected volatility in the U.S. dollar, which could lead to fluctuations in some African currencies. This volatility may have implications for asset quality and capital ratios of banks, making it essential for them to focus on effective risk management strategies. To stay ahead of the curve and navigate through these challenges, African banks need to prioritize risk management, asset quality, foreign currency liquidity, capital levels, and P&L management. Despite the challenging macroeconomic outlook resulting from global tariffs, proactive risk management will be essential for banks to maintain profitability and manage potential risks effectively. In conclusion, African banks are bracing for the impact of global tariff risks, but with strategic risk management and a focus on key financial indicators, they can navigate through the uncertainties and maintain stability in an evolving economic landscape.