Keypoints:
- Moody’s flags indirect risks from US tariffs
- China’s slowdown may cut African export earnings
- Refinancing costs for banks expected to rise
SUB-SAHARAN Africa’s banking sector may not feel the immediate sting of new US import tariffs, but could still suffer from their broader economic ripple effects, global credit rating agency Moody’s has warned.
While the tariffs themselves are not expected to directly hit African lenders, Moody’s cautioned that the ‘second-round effects’ could prove significant. These include a slowdown in Chinese demand for African exports, reduced trade finance earnings, and increased borrowing costs — all of which threaten to put pressure on bank margins and credit expansion.
‘China’s potential economic slowdown is an important second-round risk: weaker demand could cut export volumes and prices, especially for commodities,’ Mik Kabeya, Vice President and Senior Analyst at Moody’s Ratings, told Reuters on Thursday.
China is a key trading partner for sub-Saharan African nations, particularly those reliant on oil, metals and mineral exports. A slowdown in Chinese factory activity reduces the appetite for these resources, dragging down prices and volumes. That, in turn, cuts into trade-related fees earned by banks and weakens overall economic growth prospects.
Chinese demand key to export earnings
Recent economic indicators from China suggest trouble ahead. The country’s official manufacturing purchasing managers’ index dropped to 49.0 in April — its lowest level in 16 months — pointing to a contraction in industrial activity.
Further compounding the issue, the International Monetary Fund slashed China’s economic growth forecast to 4 percent for both 2025 and 2026, citing weaker global demand and sustained trade tensions. Such a slowdown is expected to ripple through commodity-dependent economies in Africa, dragging down national revenues and limiting commercial banking activity.
As exports shrink, banks will face lower trade finance income and may be forced to scale back lending due to shrinking collateral flows and business confidence.
Rising borrowing costs pile on pressure
Beyond the trade channel, Moody’s also flagged investor risk aversion as a growing threat to African financial institutions. Heightened global uncertainty surrounding tariffs and supply chains is likely to drive up dollar-denominated bond spreads. For many African banks that fund more than 20 percent of their assets through wholesale hard currency markets, this spells a rise in refinancing costs.
‘This could place pressure on banks’ profit margins and capital buffers,’ Kabeya told Reuters, noting that lenders may respond by tightening lending standards — just as businesses and consumers are already grappling with high inflation and slowing demand.
While African banks have shown resilience in recent years, particularly through the Covid-19 crisis and global interest rate hikes, the indirect consequences of a protracted tariff war between the US and China may prove more challenging to navigate.
Moody’s concluded that unless commodity demand rebounds or global trade tensions ease, the sector may have to brace for a tougher operating environment in the months ahead.
