Skip to main content

Nigerian Banks Shrinks As Central Bank Devalus Naira

Nigeria’s banks are expected to take a big hit to revenues and face rising borrowing costs this year as central bank measures to support the naira currency squeeze lenders already hit by fallout from coronavirus and the oil price shock, analysts say.

Banks in Africa’s largest economy - a mainstay for equity and fixed income frontier market investors - have learned to navigate challenges in a country that has long struggled with dollar shortages and multiple exchange rates.

But the prospect of anemic growth, dwindling oil revenues, declining remittances and dollar shortages exacerbated by the central bank’s latest action aimed at curbing naira liquidity and currency speculation are putting pressure on lending by banks and the quality of existing assets.

The central bank has sucked as much as 900 billion naira out of the local banking system since raising the cash reserve ratio (CRR) by 5% to 27.5% in January, according to analysts’ calculations.

“General sentiment in the markets is that CRR debits are carried out quite close to FX auctions to prevent the banks from presenting large ticket FX demands at auctions,” said Nkemdilim Nwadialor at Tellimer Capital.

Those debits also hamper wider lending, going against central bank measures of lowering banks’ loan to deposit ratios, she said. Central bank data showed credit to the private sector in April dropped by nearly two-thirds from end-2019.

“Banks are dealing with slow growth, fall in lending, a lack of forex in the market and asset quality issues,” said Mahin Dissanayake, senior director EMEA bank ratings at Fitch.

He expects banks’ revenues to drop at least 20% this year, though he did not expect any to make a loss.

Some banks have already indicated they expect a hit. In April, mid-tier lender Fidelity Bank warned 2020 profits would drop by 15%.

Bankers said lenders were relying on existing customers to weather the storm as new lending looked risky with the economy expected to tip back into recession.

Fitch predicts impaired loan ratios will rise sharply in 2020 with Nigerian banks the most exposed to stress in the oil sector compared to their peers in emerging markets elsewhere.

Nwadialor at Tellimer expected a “significant pick-up” of non-performing loan ratios from 6.6% in the first quarter to an average of 10% for the full year - double the central bank’s benchmark.

Some banks have already announced plans to tackle this. Mid-tier lender FCMB plans to complete a restructuring of half its loan book at the end of April. A central bank policy maker predicted last month that banks would restructure over a third of loans.

Comments

Popular posts from this blog

EndSARS: Protesters In New York Want SARS Operatives Sacked

 Hundreds of young anti-SARS protesters on Sunday stormed the Nigeria House in New York demanding transparency in the disbandment of the police unit back home. The protesters said operatives of the Special Anti-Robbery Squad found wanting should be sacked and not redeployed. Among them was Stephen “Papi” Ojo, the artist, model, and choreographer who stole the show as the ‘blue-guy’ in Beyoncé’s “Already” music video. The protest started shortly after the Inspector-General of Police, Mohammed Adamu, announced the dissolution of the Federal Special Anti-Robbery Squad. Adamu also announced plans for a new arrangement to address anticipated policing gaps following the disbandment, and the constitution of an investigative team to probe the alleged cases of rights violations, among others. But the protesters, who bore placards with different inscriptions including, “We no want audio ban”, said they were not buying it. They argued that previous commitments announced by the force to change...

Open grazing ban in South irreversible, Akeredolu replies Malami

  The Ondo State Governor, Rotimi Akeredolu, has tackled the Attorney General of the Federation and Minister of Justice, Mr Shehu Malami, for faulting the ban placed on open grazing in the Southern part of the country. The Southern Governors had at a meeting in Asaba last week banned open grazing and asked the President, Major General Muhammadu Buhari (retd.), to address the nation over the increasing rate of insecurity in the country. However, Malami who appeared as a guest on Channels Television on Wednesday faulted the ban, arguing that the governor had no right to do that. Akeredolu, who is the Chairman of Southern Governors’ Forum, spoke in a statement he personally signed on Thursday, titled, ‘ Our decision is irreversible and will be enforced ’. He asked the AGF to challenge the governor’s position on open grazing in court, adding that Malami’s comments were “ unfortunate and wicked ”. Part of the statement read, “I have just read the press statement credited to the Attorney...

Biden Announces Purchase Of 200M Vaccine Doses

  President Joe Biden announced a series of measures on Tuesday aimed at ramping up coronavirus vaccine allocation and distribution, including the purchase of 200 million more vaccine doses and increased distribution to states by millions of doses next week. With those additional doses, Biden said there would be enough to fully vaccinate 300 million Americans -- nearly the entire US population -- by the end of summer or early fall. He described efforts to combat Covid-19 as a "wartime undertaking." We now have a national strategy to beat Covid-19. It's comprehensive. It's based on science, not politics. It's based on truth, not denial, and it is detailed," he said. As part of the new efforts announced Tuesday, the US will buy 100 million more doses from Pfizer/BioNTech and 100 million more from Moderna -- the two-dose vaccines that have been granted emergency use authorization by the US Food and Drug Administration. Pfizer and Moderna are working to step up p...