Banks across most African markets were able to raise their interest rate spreads in 2012, suggesting opportunities for growth as net interest income rose for each dollar of assets. In total, for the 29 countries across which our database tracks three or more banks, the ratio of net interest income to total assets rose to 3.43% based on 2012 full-year results, from 3.09% the previous year.
Cameroon saw the steepest increase, with a climb of more than 100 basis points in the interest rate spread. But the total spread for the five Cameroonian banks tracked remains outside the top 10 highest spreads in Africa. Uganda tops that list with an interest spread of 9.55%, more than two percentage points higher than second-placed Malawi.
Several of the top 10 markets for interest rate spreads are deeply underbanked, with bank assets per capita of less than $100 providing ample room for growth, including the top two performers Uganda and Malawi. Nigeria is an obvious exception, with total assets of more than $700 per capita, yet still coming in ninth position when ranked by interest spreads. High inflation is also a factor, with six of the top 10 countries for interest spreads also among the top 10 for inflation.
At the lower end of the spectrum, the more mature banking markets tend to cluster. These include Morocco, Tunisia and South Africa, which is by far the continent’s largest banking market by assets. However, Ethiopia stands out for a markedly low interest rate spread. The population is relatively underbanked, with assets only just above $100 per capita, while inflation is high at 8.5%. Yet the interest rate spread is only 2.68%. This may reflect the fact that the market is dominated by a single bank, Commercial Bank of Ethiopia, which controls about 60% of total assets in the country. As the bank is government-owned, it may pursue development priorities rather than a purely market-based pricing of credit.
