The Push for Regulatory Support in Africa’s Banking Sector
Africa’s banking sector is increasingly calling for regulatory reforms that would allow them to tap into secondary capital markets. This move aims to securitise non-performing loans (NPLs) and reduce the burden of bad debt on their balance sheets. By doing so, banks hope to improve financial stability and unlock capital that could be reinvested into more productive areas.
The concept of securitising NPLs originated in Europe during the 2010-2012 debt crisis. At that time, European banks were overwhelmed with bad debt, which posed a serious risk of triggering a systemic financial crisis. To address this, banks began packaging NPLs into special purpose vehicles (SPVs), which then issued securities such as bonds to investors in capital markets. These securities are priced based on the expected future recoveries from the underlying loans.
At the 2025 Africa Financial Summit in Casablanca, Morocco, several African commercial banks highlighted the need for government support. They urged regulators to provide guarantees that would encourage investors to take an interest in these SPVs. Such support could help build confidence in the market and increase participation.
Access Bank’s executive director for Commercial Banking, Hadiza Ambursa, shared her bank’s experience in Nigeria. She mentioned that the lender has attempted to securitise NPLs and has completed a few transactions. However, these have been done on a per-loan basis rather than as a portfolio. Ambursa noted that while regulators have not yet provided formal guidance, she believes that additional support, such as guarantees, could significantly enhance the process. “We have securitised a couple of loans, and so far, so good,” she said.
Zenith Bank, another major Nigerian institution, has also expressed concerns about the liquidity of capital markets. The bank suggests that measures should be taken to deepen market liquidity, which would make it easier for large portfolios of securitised NPLs to find buyers. Zenith also recommends that pension funds reduce their focus on risk-free government securities. This shift could free up capital for alternative investments, including securitised NPLs.
Felix Egbon, group head of risk management at Zenith Bank, pointed out that regulators often lag behind in addressing securitisation challenges. He highlighted key issues such as the legal framework, data quality, and market depth. “For some of the assets that need securitisation running into tens of billions of dollars, no market can take that,” he said.
According to the International Finance Corporation (IFC), the path to accelerating the securitisation of bad debt must start with improved data quality standards. These standards are essential for enabling the market to price NPL portfolios accurately, making them more attractive to investors.
Claudia Da Conceicao, IFC’s regional director for Southern Africa, stressed the importance of reliable data. “Data quality is key and is one of the enablers for secondary markets for securitisation of non-performing loans because it is important for the buyer to understand what it is that they are buying,” she said. “The only way one can understand the quality of the asset is through reliable data.”
Da Conceicao also emphasized the need for a supportive regulatory environment. “Regulators need to facilitate the existence of proper credit databases and credit bureaus to allow this,” she added. In many markets, once an asset is classified as non-performing, there is little recourse apart from liquidation. This highlights the need for regulatory mechanisms that enable banks to sell NPLs effectively.
Kenya and Ghana are among the countries with some of the worst performance on banking-sector bad debt. Their NPL ratios stand at 17.6 percent and 20.8 percent, respectively. These figures underscore the urgency of implementing reforms that can help manage and reduce bad debt.
The push for regulatory support and improved data infrastructure represents a critical step forward for Africa’s banking sector. As banks continue to explore ways to manage their non-performing loans, the role of regulators and the development of robust financial markets will be pivotal in shaping the future of the industry.