Webinar: FX risk in the African Banking sector: Survey results
The Making Finance Work for Africa (MFW4A) partnership, in collaboration with TCX, is organizing a webinar to present the survey results on how foreign exchange risk and matters arising from it, affect both African banks and non-bank financial institutions (NBFIs) and their clients. This webinar will showcase how banks and NBFIs are exposed to currency risks and the practices they have adopted to mitigate these risks, as well as the challenges they are facing.
The registration link is provided below.
The exposure of African financial institutions to currency risk is a critical aspect of their operational landscape, influencing their solvency, profitability, resilience, and ultimately their ability to support economic growth. African financial institutions are particularly vulnerable to currency risk, as banks hold some of their assets and liabilities in foreign currency. Almost 70% of African banks and NBFIs surveyed report being exposed to foreign exchange risk. Usually, these banks rely on a significant amount of USD or EUR funding from international investors, Multilateral Development Banks (MDBs), and/or Development Finance Institutions (DFIs), while their loans are mostly denominated in local currencies, causing a currency mismatch on the balance sheet.
This setup leads to multiple issues, including balance sheet volatility and potential solvency concerns, as banks can face difficulties with debt repayment if domestic currencies depreciate. These institutions are aware of the currency risk they face and have established different strategies and procedures to manage the risk. However, they identified multiple challenges in implementing effective risk management/hedging solutions, including a lack of capabilities, the cost of the hedging solutions, and regulatory considerations.