Connect with us
nairametrics

Financial Services

Key new forecasts for Nigerian banks as they navigate COVID-19 pandemic

Nigerian banks are expected to experience a slowdown in 2020 due to the COVID-19 pandemic.

Published

on

Banks' loans to customers

There is no gainsaying the fact that the Nigerian banking sector will experience a slowed-growth phase this year, due to the COVID-19 pandemic that has ravaged the economy. Several reports have been pointing to this sad reality, with the latest being Fitch Solutions’ Nigeria Banking & Financial Services Report for Q3 2020.

The 57-paged report made some very vital forecasts for Nigerian banks, one of them being that high inflation and increased government borrowing will be responsible for much of the headwinds to banks’ profitability in the medium term. In other words, even though these banks are expected to grow in the medium term, the rate of growth will be determined by the effects of inflation and government’s borrowing from the banks.

“Nigeria’s banking sector is set to grow over the medium and long term, with a slowing of growth in 2020, supported by new lending requirements which will help boost growth. However, we expect high inflation and government borrowing to provide strong headwinds to growth over the medium term,” part of the report said.

READ ALSO: Fitch rates 3 Nigerian banks lower to ‘B’, places others on negative watch

In the meantime, Fitch Solutions has revised its earlier 2020 growth forecast for Nigerian banks, including their total banking asset growth. The decision to change the earlier forecast was made out of consideration for the economic shortfalls caused by the pandemic.

GTBank 728 x 90

Note that Nigeria’s adoption of the IFRS 9 accounting standards for bad loans had considerably helped to improve asset quality in the banking sector. As a matter of fact, the ratio of non-performing loans (particularly those in the oil and gas sector) had declined by as much as 40.7% between Q4 2018 and Q4 2019. Unfortunately, the pandemic and the dramatic fall in oil prices earlier this year, all combined to negate the recent recorded success. This is why banks’ asset quality is projected to deteriorate this year, according to Fitch Solutions. This will also make banks become more cautious about lending.

READ MORE: CBN to finance renewable energy initiatives, sets up N500 billion fund for manufacturers

“We continue to expect the changed minimum loan requirement to help drive client loan growth over the medium term. We have revised our growth forecast from the previous quarter and expect client loans to reach NGN14.9trn in 2020 with growth of 2.5% from 2019.

Coronation ads

“Due to economic headwinds caused by the coronavirus pandemic, we have revised our forecast for total banking asset growth to 5.3% to NGN44.2trn. Over the medium term, we see average annual asset growth of 12.0% to NGN63.8trn by 2024.

READ ALSO: Fitch says Nigerian banks have a risk indicator of 12.14, explains why

“Following the adoption of the IFRS 9 accounting standards for bad loans, including the transition that will protect banks’ capital adequacy ratios, asset quality in Nigeria has improved. Nigeria’s ratio of non-performing loans (NPLs) tied to the oil sector declined by 40.7% from Q418 to Q419 as oil exports rose by 16.1% in 2019. In turn, the total NPL ratio fell from 11.7% to 6.0% over this period. However, due to the combined economic impact of the Covid-19 pandemic and lower oil price, we expect asset quality to deteriorate this year, making banks more cautious about lending.”

Download the Nairametrics News App

Jaiz bank ads

Below are the other key forecasts made by Fitch Solutions concerning the Nigerian banking sector:

Stanbic IBTC
  • At Fitch Solutions, we forecast a deceleration of client loan growth from 14.0% y-o-y in 2019 to 2.5% in 2020, before a small pickup to and 4.3% in 2021. Downside risks are elevated due to the Covid-19 pandemic and a weakened oil sector.
  • Demand for credit is set to weaken amid reduced economic activity and elevated uncertainty among consumers and businesses while deteriorating asset quality will make banks more cautious in issuing loans.
  • Increased government borrowing from domestic banks will help to support asset growth over the coming years. That said, there are risks of this crowding out private borrowers from receiving credit, hampering the economy’s long-term recovery.

Emmanuel is a professional writer and business journalist, with interests covering Banking & Finance, Mergers and Acquisitions, Corporate Profiles, Brand Communication, Fintech, and MSMEs. He initially joined Nairametrics as an all-round Business Analyst, but later began focusing on and covering the financial services sector. He has also held various leadership roles, including Senior Editor, QAQC Lead, and Deputy Managing Editor. Emmanuel holds an M.Sc in International Relations from the University of Ibadan, graduating with Distinction. He also graduated with a Second Class Honours (Upper Division) from the Department of Philosophy & Logic, University of Ibadan. If you have a scoop for him, you may contact him via his email- [email protected] You may also contact him through various social media platforms, preferably LinkedIn and Twitter.

Click to comment

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Financial Services

Conventional insurance firms can now set up their Microinsurance department – NAICOM

NAICOM has issued a circular allowing conventional insurance companies in Nigeria to exploit the huge opportunities in the Microinsurance window.

Published

on

NAICOM

The National Insurance Commission (NAICOM) has issued a circular (NAICOM/DPR/CIR/32/2020) allowing conventional insurance companies in Nigeria to exploit the huge opportunities in the Microinsurance window.

The circular was signed by Akah L M, Director (Policy & Regulations), and disclosed that the requirements for the conventional insurance firms to be granted approval for the window operation includes:

  • The insurer shall seek and obtain approval of the Commission to transact microinsurance business.
  • Board resolution approving the establishment of a microinsurance department.
  • Applicant shall apply for window microinsurance national operation licence.
  • The department shall be headed by an experienced Insurance Officer, not below the rank of an AGM.
  • The Insurance Officer must possess a minimum of 7 years post Associate of Chartered Insurance Institute of Nigeria qualification or a minimum of 10 years working experience in a technical department of an insurance institution.
  • Any window operator shall segregate the financial records of its microinsurance business from that of the conventional business.
  • Appropriate reinsurance arrangement shall be put in place.

(READ MORE: NAICOM gives insurance companies additional one year to recapitalise)

What this means

The microinsurance window presents a gold mine waiting to be tapped by the conventional insurance firms in Nigeria, helping them to achieve critical mass in the market.

GTBank 728 x 90

This would afford opportunities for those in informal sectors, as well as low-income people and households to enjoy insurance products and services that will protect them against unexpected events, that could threaten their livelihood and businesses.

Continue Reading

Financial Services

CBN introduces “Special Bills” as part of efforts to control money supply in the economy

The Central Bank of Nigeria has announced the introduction of a Special Bill with unique features.

Published

on

CBN Gov Godiwn Emefiele

Nigeria central bank has announced the introduction of what it calls the “Nigeria Special Bills” in what it claims is an effort to deepen the financial markets.

The apex bank also claims the instrument avails it with an additional liquidity management tool for Nigeria’s financial system.

In a disclosure, signed by the Director of Banking Supervision of CBN, Bello Hassan, and seen by Nairametrics, it said the Special Bills contained the following features

READ: CBN Governor alleges parallel market used for bribes and corruption

  1. It has a Tenor of 90 days
  2. It comes with Zero coupon, as the applicable yield at issuance will be determined by the CBN.
  3. The instrument will be tradable amongst banks, retail and institutional investors.
  4. The instrument shall not be accepted for repurchase agreement transactions with the CBN and shall not be discountable at the CBN window.
  5. The instrument will qualify as liquid assets in the computation of liquidity ratio for deposit money banks.

The central bank, yanked off retail and instituional investors from accessing the highly lucrative Open Market Operations bills where yields were previously high. It is unclear if this bills will replace the OMO bills or is permamnent.

GTBank 728 x 90

READ: Frantic CBN allows diaspora remittances to be withdrawn in dollars and sold anywhere including black market

What this means: With the introduction of the new Special Bills, the CBN aims to securitize the excess Cash Reserve Requirement balances of local banks by offering them short-dated zero-coupon special bills.

  • Since May 2020, the central bank has sequestered over N6 trillion as part of its CRR debits of the accounts of deposit banks.
  • Nigeria’s central bank expects commercial banks to maintain a loan to deposit ratio of 65% and thus debits the accounts of commercial banks who do not meet this target for excess deposits.
  • According to Nairametrica analysts, this new bill provides the banks with an instrument which they can offer to investors in exchange for a return. For example, the banks can sell the “Special Bills” to investors who need fixed income instrument.

Why it matters: The claims the Special Bills is in line with the “CBN’s goal of ensuring optimal regulation of systemic liquidity and promoting efficient financial markets in support of economic recovery and sustained growth,” however Nairametrics undertands there could be more to this.

Coronation ads

However, Nairametrics believes pressure from the banks who have complained about the frequent debits may have resulted in this new Special Bills. In some of the earnings calls listened into by Nairametrics, banks have often cited the drop in their interest income and margins.

READ: Bankers’ Committee embarks on cybersecurity & fraud awareness initiative, launches Moni Sense campaign

What they are saying: A part of the recent CBN disclosure read thus: “The Central Bank of Nigeria (CBN) hereby announces the introduction of Special Bills as part of efforts to deepen the financial markets and avail the monetary authority with an additional liquidity management tool.”

What to expect: The CBN is expected to further clarify the issue and pricing of the recent instrument in coming days.

Jaiz bank ads
Continue Reading

Financial Services

Fidelity Bank MD/CEO purchases 5 million additional shares worth N12.97 million

The MD/CEO Designate of Fidelity Bank Nigeria Plc has purchased an additional five million units of the bank’s shares.

Published

on

Fidelity Bank M.D purchases 5 million additional shares worth N12.97 million

The Managing Director/CEO Designate of Fidelity Bank Nigeria Plc, Mrs. Nneka Onyeali-Ikpe has purchased an additional five million units of the bank’s shares totalling N12.97million.

This is according to a notification, signed by the bank’s Secretary, Mr. Ezinwa Unuigboje, and sent to the Nigerian Stock Exchange Market yesterday, as seen by Nairametrics.

What you should know

The breakdown of the disclosure showed that the transaction took place in five tranches with an average share price of N2.56.

  • First tranche: 260,190 units of the bank’s share were bought at N2.52 each, amounting to N655,678.8
  • Second tranche: 400,000 units of the bank’s share were bought at N2.55 each, amounting to N1.02million.
  • Third tranche: 130,000 units of the bank’s share were bought at N2.58 each, amounting to N335,400.
  • Fourth tranche: 2,870,000 units of the bank’s share were bought at N2.60, amounting to N7.46million.
  • Fifth tranche: 1,339,810 units of the bank’s share were bought at N2.56, amounting to N3.43million.

(READ MORE: Fidelity Bank slashes growth forecast, readies Eurobond coupon ahead of due date)

GTBank 728 x 90

In summary, the total transactions incurred by the MD in buying 5 million additional shares grossed N12.97million.

What this means

The recent corporate action indicates growing optimism in the bank’s future and potentials, which could be a pull factor to other investors.

Coronation ads

Continue Reading