- Top Five Nigerian Banks Face Credit Challenges Ahead
While Nigeria’s five biggest banks share common credit challenges related to the slowdown in Nigeria’s oil and gas dependent economy, their ability to withstand weak economic growth and volatile monetary conditions varies, one of the global rating agencies, Moody’s Investors Service said in a report monday.
The banks – Zenith Bank Plc, Guaranty Trust Bank Plc, Access Bank Plc, United Bank for Africa Plc (UBA), and First Bank of Nigeria Limited, have all been affected by the weakening domestic operating environment following the prolonged period of lower oil and gas prices, it stated.
It further pointed out the more challenging environment, coupled with Moody’s view of the high likelihood of support from the Nigerian government, largely explains its narrow range of issuer ratings of the five banks.
“However, despite shared credit challenges, there are differences among the banks in terms of their respective abilities to withstand weak economic growth and volatile monetary conditions, which are reflected in their differing baseline credit assessments (BCAs) that range from b1 to b3,” a Moody’s Vice President Senior Analyst and co-author of the report, Akin Majekodunmi added.
“Overall, Moody’s views Zenith and GTBank as best placed to cope, followed by Access and UBA, and then FBN.”
The publication of the peer comparison report followed Moody’s announcement on 15 September that the ratings agency had assigned first-time ratings to Zenith, GTBank, UBA and FBN, which account for approximately 48 per cent of Nigeria’s banking assets.
Looking across the whole of the Nigerian banking sector, Moody’s expects non-performing loans (NPLs) to increase to around 12 per cent over the next 12 months, compared to the five per cent as of December 2015 recorded in central bank data. The forecast rise in NPLs stems from lower oil prices, a weakening naira, slower GDP growth and rising inflation.
“Likewise, the agency expects foreign currency deposits, which have fallen around 30 per cent since the start of 2015, to stabilise over the next 12 to 18 months as the impact of lower oil prices and the central bank’s adoption of a Treasury Single Account fades.
“Moody’s expects loss-absorbing capital buffers to hold steady on account of muted loan growth of around 5-10 per cent over the next 12 to 18 months. However, as a result of this weak loan growth, net interest income and fee and commission income will remain depressed.
“On the upside, Nigeria’s economic potential remains strong and continues to attract investment. Depositor confidence and local currency buffers at the banks also remain robust,” it added.
Nigerian Banks’ Borrowings from CBN Surge 835% in a Month, Raising Liquidity Concerns
The Nigerian banking sector has witnessed an unprecedented 835% surge in borrowings from the Central Bank of Nigeria (CBN) in the span of just one month, igniting concerns over the nation’s liquidity stability.
Data reveals that banks’ dependence on the CBN has reached new heights, with their borrowings skyrocketing from a relatively modest N323.97 billion in August to N3.03 trillion in September. This remarkable increase underscores a growing reliance on the CBN’s support in times of financial stress.
This surge in borrowing activity has primarily been attributed to the CBN’s stringent monetary policies aimed at curbing inflation and managing the demand for foreign exchange. These policies have, in turn, squeezed commercial banks, compelling them to tap into the CBN’s Standing Lending Facility (SLF) for immediate liquidity needs.
Despite the escalating dependence on CBN funds, the Monetary Policy Committee (MPC) of the apex bank insists that the Nigerian banking sector remains fundamentally robust. MPC member Adenikinju Festus highlighted key indicators, including Capital Adequacy Ratio (CAR) and Non-Performing Loan (NPL) ratios, which still align with prudential standards. Furthermore, liquidity ratios have improved, and returns on equity and assets have risen.
However, the banking industry’s persistently high operating costs are raising alarms. In comparison to international standards, Nigerian banks are grappling with substantially higher operating expenses, prompting concerns about their long-term sustainability.
In a parallel development, the CBN’s Development Finance Department has disbursed a total of N9.714 trillion to various sectors of the economy over the past three years, with manufacturing and industries receiving the largest share at 32.6%.
Other sectors, including energy, agriculture, services, micro, small, and medium enterprises (MSMEs), export, and health, have also benefited significantly from these disbursements.
While the CBN remains committed to fostering sustainable economic growth, the surging dependence of Nigerian banks on short-term borrowings from the central bank is casting shadows on the sector’s long-term stability.
As Nigeria grapples with these liquidity concerns, the financial industry and regulators face the challenging task of charting a course towards a more resilient and sustainable banking environment.
Central Bank of Nigeria Postpones 293rd Monetary Policy Committee Meeting
The Central Bank of Nigeria (CBN) has announced the postponement of its 293rd Monetary Policy Committee (MPC) meeting, originally scheduled for September 25th and 26th, 2023.
Dr. Isa AbdulMumin, the bank’s Director of Corporate Communications, released a statement on Thursday confirming the decision.
In the statement, Dr. AbdulMumin stated, “The Monetary Policy Committee of the Central Bank of Nigeria has deferred its 293rd meeting, which was initially planned for Monday and Tuesday, September 25th and 26th, 2023, respectively. A new date will be communicated in due course. We regret any inconvenience this change may cause our stakeholders and the general public.”
While the CBN did not provide an official reason for the postponement, some industry experts suggest it may be related to the pending approvals for the newly appointed governor and deputy governors of the bank.
President Bola Tinubu recently nominated Yemi Cardoso as the potential head of the CBN. Additionally, Tinubu has endorsed the nominations of four new deputy governors for the apex bank, who are expected to serve for an initial term of five years, pending confirmation by the Senate.
The nominated deputy governors are Emem Usoro, Muhammad Abdullahi-Dattijo, Philip Ikeazor, and Bala Bello. However, the appointment of the CBN governor is contingent upon Senate confirmation, which is currently on a yearly recess.
The CBN assures stakeholders and the public that the rescheduled MPC meeting date will be communicated promptly as soon as it is confirmed.
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