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Addressing COVID-19 Impact on the Resilience of Financial Service Providers in Africa.
05 May, 2020

The COVID-19 pandemic is posing significant challenges to economic activity in different sectors in Africa. The deteriorating global economic conditions coupled with lockdown imposed by the national governments to contain the spread of the epidemic is contributing to low market demand, business disruptions and loss of jobs. Financial services providers are at the front line of fulfilling the dual task of playing an important role in mitigating the impact of the epidemic on economy by supporting struggling businesses to weather the crisis and managing the heightened risks to which they are exposed. Though it is hard to determine the quantum of the impact at this stage, such critically important support measures (in the form of refinancing, temporarily suspending loan repayments, fees, and other related measures) to struggling businesses could contribute to increase in non-performing loans (NPLs), decline on earning and capital of the financial service providers. Tougher times lie ahead for financial service providers as they should play a delicate balancing act of continuing to support the economy during the crisis while they themselves remain financially robust. The SDGC/A recommends the following to ensure that the financial service providers continue play such a role.

  1. Financial service providers and supervisors must remain vigilant in light of the evolving nature of Covid-19, regularly assessing vulnerabilities, financial and supervisory implications to ensure the financial system remains financially and operationally resilient.
  2. Financial service providers should re-enforce stress testing assumptions with a range of scenario modeling by considering the severe economic shocks expected in the immediate and medium term on how COVID-19 could impact their customers, financials, systems and operations, and ensure robust business continuity in the face of the pandemic.
  3. Regulators should introduce more structured, rapid and coordinated response including taking additional monetary, regulatory and supervisory measures that support timely identification and mitigation of risks to maintain financial stability, boost liquidity in a prudent manner and follow relevant standards, flexibilities and transitional arrangements set by standard setting bodies (such as Basel Committee, International Accounting Standard Board (IASB) for example on accounting of expected credit loss (ECL) in accordance with IFRS9) that help to increase operational capacity of banks and supervisors to respond to COVID-19.
  4. Central banks, social investors and other key stakeholders in development finance should consider rescue packages including provision of liquidity support and recapitalization of microfinance institutions to continue provision of their financial services to lower income segments of the population during the crisis and beyond.
  5. Relevant African regional and sub-regional bodies should enhance coordination among key stakeholders including finance ministers, central bank governors, private sector and other key stakeholders to develop and implement a joint action plan which outlines individual and collective actions that should be taken to respond to mitigate cross-cutting financial stability threats and share lessons learned.

 

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