Africa’s banks now want regulators to ease the constraints that prevent them from tapping into secondary capital markets to securitise non-performing loans and ease the pressure that bad debt exerts on their balance sheets.

Securitisation of non-performing loans has its origin in Europe after the 2010-2012 debt crisis that left banks saddled with piles of bad debt that risked triggering a systemic crisis.

In the securitisation process, a bank packages a bunch of NPLs into a special purpose vehicle that then issues securities such as bonds to investors in the capital markets. The value and pricing of the issued securities is informed by the expected future recoveries from the packaged non-performing loans.

Speaking at the 2025 Africa Financial Summit in Casablanca, Morocco, a section of Africa’s commercial banks called on governments to consider providing support by way of guarantees that ensure investors warm up to the prospect of taking up the opportunity presented by the packaged special purpose vehicles.

“We have not done them as one portfolio but as single loans. The regulators have not said anything yet, but we feel that if we had their support in terms of for instance guarantees it would really help. That said, we have securitised a couple and so far, so good,” she said.

Nigeria’s other big bank, Zenith, wants measures taken to deepen the liquidity of capital markets to strengthen the possibility of uptake of big-ticket securitised NPL portfolios. The bank also recommends trimming of pension funds’ appetite for investment in risk-free government securities to free up capital for alternative asset allocation, including securitised NPLs.“Regulators are always the last to come to the table and the challenges around securitisation centre on the underlying legal framework and its standardisation, data quality concerns, as well as how deep the market actually is,” said Zenith Bank’s group head of risk management, Felix Egbon. “Maybe the capital markets can take non-performing loans from small and medium-sized businesses and the retail portfolios. But, for some of the assets that need securitisation running into tens of billions of dollars, no market can take that.”According to the International Finance Corporation (IFC), the path towards accelerated securitisation of bad debt in the banking sector must start with strengthened data quality standards that enable the market to price the portfolios for investors to consider.

IFC argues that as things stand, credit data across the continent suffered considerable gaps in terms of standardisation and comparability that inhibits securitisation of bad debt at scale.

“The regulatory environment must allow commercial banks to sell those non-performing loans and the mechanisms through which this can be done is very critical. In many markets, you find regulators don’t allow this and once an asset is classified as such there is no much recourse apart from liquidation. So, regulators need to facilitate the existence of proper credit databases and credit bureaus to allow this.”Kenya and Ghana have some of Africa’s worst performance on banking-sector bad debt, with the NPL ratios across the two economies standing at 17.6 percent and 20.8 percent, respectively.

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