Fitch Ratings: Financial sustainability next challenge to African NDBs' revival

African National Development Banks (NDBs) are facing a crucial challenge of financial sustainability, according to a recent report by Fitch Ratings. The report highlights the need for improved internal capital generation and diversification of cost-effective funding to achieve the business transformation strategies pursued in recent years. Vincent Martin, Director at Fitch Ratings, discussed the key findings of the report in an interview with CNBC Africa. Martin emphasized the importance of sovereign support for African NDBs, stating that it is inherent to their existence. These banks are created and funded with government guarantees, making sovereign support critical. However, Martin pointed out that in order to meet the 2030 sustainable development goals, African NDBs need to increase their impact and explore new forms of sovereign support. This includes appointing skilled individuals, setting ambitious development objectives, and ensuring independence in day-to-day management. One of the key challenges facing African NDBs is their limited size and development impact. Martin noted that these banks currently account for only one percent of global industry total assets, suggesting that they have a long way to go in terms of contributing to sustainable development goals. In order to enhance their impact, Martin suggested that African NDBs should focus on leveraging their market knowledge and unique ability to identify viable development opportunities. To address the challenges of financial sustainability, African NDBs must focus on improving efficiency, increasing top-line revenue, and diversifying funding resources. Martin highlighted the importance of accessing cost-effective funding to enable lending at low rates. This can be achieved through domestic resource mobilization, partnerships with development lenders, and sovereign guarantees when needed. Despite the challenges, some African NDBs have made significant progress in recent years. Martin pointed out that several leading NDBs have secured large borrowings from development lenders and commercial lenders on market terms. These success stories demonstrate that building confidence, improving the business model, and showcasing measurable development impacts are key factors in attracting support from financial partners. In conclusion, the report by Fitch Ratings underscores the importance of financial sustainability for African NDBs and the need for enhanced internal capital generation and diversified funding sources. By addressing these challenges and focusing on governance, transparency, and risk management, African NDBs can strengthen their position as key players in driving sustainable development in the region.