Analysts Foresee 8% Loan Growth for Banks in 2021

Analysts at CSL Stockbrokers Limited have predicted an eight per cent loan growth for the Nigerian banking sector in 2021.

The Lagos-based firm stated this in a report on its 2021 outlook titled: “Surviving Amidst Uncertainties.”

The firm pointed out that at the onset of the pandemic and the subsequent impact on the macro economic environment resulted in minimal loan growth for the banks.

It revealed that as of the first nine months of 2020, the banks under its coverage reported an average loan growth of 9.6 per cent, adding that banks were expanding their loan books to meet the Central Bank of Nigeria’s (CBN) minimum loan-to-deposit (LDR) ration.

However, it noted that the onset of the virus and the weak macro environment meant many banks had to slow down on loan growth despite CBN’s minimum LDR requirements.

“We forecast average loan growth of eight per cent for the banks under our coverage,” the firm added.

It stated that the CBN’s 65 per cent minimum LDR policy and its policy restricting individuals, PFAs and corporates to Nigerian Treasury Bills (NT-Bills), fixed deposits and FGN bonds resulted in a significant decline in asset yields for banks.

“With rates still at historic lows, we expect only a marginal improvement in yields as the year progresses.

“We expect improvement in non-interest income as banks strive to increase transaction volumes following CBN’s revised fee guide on electronic transactions which took effect in 2020.

“Banks were given a forbearance in 2020 ending to restructure loans. With the macro situation still poor, we expect some of these loans to begin to show signs of strain,” it added.

In its assessment of the economy generally, it noted that the Nigerian economy slumped into recession in 2020, occasioned by the headwinds associated with the Covid-19 pandemic.

It projected that the economy would contract by 2.7 per cent in 2020 and was projected to exit recession in 2021, supported by the gradual normalisation of economic activities, as the impact of the lockdown in 2020 continues to fade.

“We expect growth to be driven by the non-oil sector, supported by gains from agriculture and the telecommunication sectors, the combination of which accounts for about 38 per cent of the GDP basket.

“On the Oil sector, we see limited upside, as the output will remain undermined by OPEC cuts. We expect growth to reach 1.4 per cent in 2021.
“Downside risks to our forecast are linked to the lingering effects of the pandemic caused by the delayed distribution of effective vaccines,” it added.

Furthermore, it noted that consumer prices firmed in 2020, on the back of supply chain disruption emanating from the pandemic, forex restrictions, border closure and climate related shocks.

It also anticipated that inflation would maintain its ascent in 2021, with pressure expected from both the food and core baskets of the CPI.

“On the core inflation, we expect pressure from fuel subsidy removal and higher electricity prices. For food inflation, while decision to reopen the border is a positive development, food prices will remain elevated on continued insecurity challenges in food producing regions.

“Overall, we expect headline inflation to average 16.4 per cent in 2021, with year-end figure at 14.6 per cent.

“Nigeria’s external position worsened in 2020, as continued reliance on oil earnings and hot money has left the country vulnerable to shocks. Current account deficit is projected at 3.4 per cent of the GDP in 2020.

“In 2021, current account deficit will narrow, supported by a gradual recovery in global economic activities and firming crude oil prices.

“Against the foregoing, the current account gap for 2021 is estimated at $10.80 billionn (2.31% of the GDP).

“Financing these deficits may be challenging, as foreign portfolio investment flows are likely to slowly recover from last year’s troughs.

“Also, to correct the current BOP imbalances and pressure, we expect the CBN to devalue the currency,” it stated.

The naira was devalued across all the segments of the FX market in 2020, following the pressured external reserves amidst elevated FX demand and waned inflows.

“In 2021, with crude oil prices poised to improve alongside dollar dominated-budget facility from the World Bank, we expect the CBN’s monthly intervention to gradually increase to pre-pandemic levels of about $3.2 billion versus current levels of $1.4 billion,” it added.