African banks are showing a waning appetite for government bonds in the wake of debt defaults and restructuring programmes in Zambia, Ethiopia and Ghana.

Global rating agency Moody’s says the financial challenges wreaking havoc in many African countries will make commercial banks on the continent more cautious in lending to governments, in a bid to forestall the potential for debt default and protect their profit margins.

Moody’s, in a report on African banks dated September 17, 2025, says African lenders would “likely remain cautious” about the amount of money (in foreign currency) they invest in sovereign debt and the tenor at which they extend this funding. This is evidenced by their increasing preference for shorter-tenor instruments.“We expect African banks to continue to deploy the FC (foreign currency) at attractive rates through term loans, trade loans, investment in FC-denominated government securities or FC lending to central banks,” says Moody’s.“However, they will likely remain cautious about the proportion of their foreign currency funding they put into holdings of FC-denominated African sovereign debt securities, as well as the tenor at which they extend that funding, as shown in a preference for shorter-dated instruments. This reflects recent debt restructurings in Ghana (Caa2 positive), Zambia (Caa2 positive) and Ethiopia (Caa3 stable).”

The report notes that banks will use most of these foreign currency deposits to finance short-dated foreign currency assets, such as short-term trade assets and foreign exchange-denominated fixed-income securities.

According to the agency, African banks’ costs of raising foreign currency funding from international bond markets will remain high. This is measured by yields on US Treasuries and spreads in Eurobond markets, which increased significantly, peaking in 2023 at the highest level in more than 10 years.

This primarily stems from higher benchmark rates in the US, driven by high inflation and robust economic growth in recent years, reflecting high credit spreads in Africa due to fiscal, liquidity, and social challenges.

Since the 2022-23 peak, the cost of raising foreign currency on Eurobond markets has eased for most issuers, mainly from receding inflation and lower policy rates at major global central banks.“Although costs will probably decline further with the resumption of US Federal Reserve rate cuts, we believe they will stay around their 10-year highs,” says Moody’s.“For African banks, access to foreign currency is important because they use it to support cross-border trade that is critical for African economies, which are largely import-oriented.”The report notes that while international and regional commercial banks both have long-standing ties with African banks that will support FC lending, the ongoing gradual shift in their ranks will support an increase in African banks’ reliance on funding from international commercial banks instead of Eurobond debt markets.

A cohort of African banks is facing upcoming Eurobond maturities, with a large portion coming due in the second half of 2025 or in 2026.“While these banks represent a small subset of the banks we rate in Africa, this wall of Eurobond maturities is still large. The aggregate size of the Eurobond maturities due in 2025-26 totals $1.5 billion, with an additional $1 billion in Eurobond perpetual issuances that have 2026 call dates.”A large portion of Eurobonds issued by African banks comes due in the second half of 2025 or in 2026. Nigerian banks account for the bulk of African financial institutions with outstanding Eurobonds due in the next 18 months.

Among the African banks that have issued Eurobonds are First Bank of Nigeria, EBN Finance Co BV (Nigeria), Absa Group (South Africa), Access Bank (Nigeria), Fidelity Bank (Nigeria), and United Bank for Africa (Nigeria).

Others are BOI Finance BV (Nigeria), The Mauritius Commercial Bank (Mauritius), Ecobank Transnational Inc (Togo), and Standard Bank of South Africa Ltd (South Africa).“Even so, some of these upcoming Eurobond maturities will likely be refinanced through lending markets because of the more attractive pricing,” says Moody’s. “Additionally, some banks will likely use their own liquidity temporarily to repay their Eurobond while they wait for more favourable market conditions as interest rates come down.”

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