Cape Verde’s Economy: Bad Loans Plummet in 2025
Cape Verde’s financial system demonstrated remarkable resilience throughout 2025, bolstered by sustained economic growth and a significant strengthening of the banking sector, according to the Bank of Cape Verde’s (BCV) latest Financial Stability Report released today.
Strengthening Banks and Slashing Bad Debt
The report highlights a marked improvement in the financial health of the nation’s lenders. The solvency ratio—a key measure of a bank’s ability to meet its long-term obligations—rose from 23.9% to 25.2%. This figure sits comfortably above the regulatory minimum of 12%, suggesting a robust buffer against potential economic shocks.
In a significant win for the sector, non-performing loans plummeted by 32.4%. The ratio of these “bad loans” dropped from 7.9% to 5.2%, even as banks increased their coverage levels to protect against future exposures.
Lingering Vulnerabilities and Structural Risks
Despite the positive trajectory, the BCV cautioned that “relevant structural vulnerabilities” continue to shadow the banking sector. The central bank pointed to high levels of market concentration in both credits and deposits, noting a heavy reliance on institutional funding sources.
The report also identified significant exposure to the real estate sector and a “substantial” interconnectedness between the banking sector and the public sector. While this linkage has decreased in relative terms, regulators warn that these ties could act as channels for transmitting and amplifying financial shocks across the economy.
Cyber Threats and Climate Change
Looking toward future threats, the BCV emphasized two growing concerns: technology and the environment. A high dependence on digital infrastructure means that any cyber incident could rapidly spread through the interconnected financial system, causing widespread disruption.
Furthermore, the central bank flagged Cape Verde’s extreme vulnerability to climate change. Extreme weather events recorded in 2025 have already demonstrated the potential to damage economic activity, erode household income, and threaten corporate assets, all of which ultimately impact the stability of the financial system.
Systemic Importance
As part of its prudential oversight, the BCV classified the nation’s seven banks based on their systemic importance. Two institutions were labeled as being of “high systemic importance,” three as “slight systemic importance,” and two were deemed to have no systemic importance.
Image: Pexels – Jakob Schlothane
