- Nigerian banks are operating in increasingly difficult conditions as this may result in a sharp deterioration of their profitability, asset quality, liquidity and capital ratios.This report was made by Fitch over the weekend.
- According to Fitch, “The sector outlook is negative in December. Gross Domestic Product, GDP figures for second quarter show weaker year-on-year growth of 2.4 per cent , down from 4 per cent in the previous quarter, the slowest quarterly growth rate for over 10 years.”
Fitch explained that Nigerian banks have had to contend in recent months with the increased vulnerability of the oil and gas sector, pressure on the naira, the slower economy and tightening bank liquidity. “These are all credit negative for the sector. Since the beginning of August, public sector deposits, which represent around 8% of total system deposits, have exited the commercial banks and must be held at a single treasury account at the central bank. This adds pressure to liquidity.
- Furthermore,it states that no significant changes in economic policy have materialised following the change of government at end-March 2015, but until a new cabinet is formed and a clear policy framework is announced, uncertainty will weigh on the outlook” it noted. According to Fitch “Loan growth contracted in first half 2015 which is likely to translate to weaker bank financial metrics for the year.
- It further states that the sector non-performing loans will rise above the central bank informal cap of 5 per cent , but below 10 per cent of total sector loans by end-2015. Regulatory capital adequacy ratios are likely to fall further due to lower earnings, weaker asset quality and a limited ability to raise capital. Tier 1 capital ratios could fall below 15 per cen for many banks, which is low by historical standards for Nigeria.