Nigeria Banking Outlook Stable, Says Moody’s Investors

• Nigeria Banking Outlook Stable, Says Moody’s Investors

Global rating agency, Moody’s Investors is keeping its outlook on the Nigerian banking system stable to reflect its resilient capital buffers and stable deposit bases, with high risks likely to subside as the economy is expected to strengthen.

The agency stated this in its new report on the African country’s financial institutions.

“Nigerian banks’ asset risk and profitability will remain key rating challenges, but we expect these challenges to gradually decline in 2020 as the economy picks up,” Analyst at Moody’s, Peter Mushangwe, said.

“Banks’ funding and liquidity profiles will remain stable thanks to solid deposit bases.”

The key highlights of its report include the fact that non-performing loans (NPLs) will decline to seven to eight per cent over the outlook period from 11.7 per cent at year-end 2018 – but still at a high level; and that system-wide tangible common equity will be stable at 16 per cent of risk-weighted assets at year-end 2018, thereby sufficient to bear losses.

The report also pointed out that “banks revenue will be restrained by subdued loan growth while cost pressures, due to IT investments, an AMCON levy and higher staff costs, will slow pre-provision profitability.

“Loan quality pressures will ease but remain banks’ main weakness. Nonperforming loans (NPLs) will decline to seven to eight per cent in the next 12-18 months from 11.7 per cent at the end of 2018 – still a high level. Higher oil prices will constrain new NPL formation while high loan-loss reserves will allow banks to write off some of their bad debts. These credit positives will be moderated by lingering risks from high loan concentrations and high delinquency levels.

“Moody’s expects Nigeria’s real GDP to expand 2.3 per cent in 2019 and 2.8 per cent in 2020, up from 1.9 per cent last year, but well below the level required to improve living standards. Lending growth will recover in the second half of the year following a contraction in 2018, but it will remain subdued and will not appreciably boost banking revenue,” Moody’s Investors Service said in a report.