Analysts expect Nigerian banks’ revenues to shrink by 20% this year
Nigerian banks are expected to experience about 20 percent fall in revenues this year, Fitch Rating said against the backdrop of slow growth, fall in lending and dollar shortages.
“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.
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.
Many banks are also expected to face rising borrowing costs this year as the over $7 billion raised through Eurobond will mature in the coming month, putting them in tighter corners as a result of dollar shortage in Africa’s biggest economy.
Moody’s warned in a note that dollar shortages would intensify over the next 12-18 months – a period when 49 percent of banks’ $7 billion foreign-currency borrowing matures, leaving them vulnerable.
Yields on dollar bonds issued by Nigerian banks – a proxy for borrowing costs – have retreated from the peaks scaled in the midst of the oil and coronavirus rout. Yet for lenders such as Zenith Bank, Fidelity Bank or Access Bank, the yields are still at least double the level from mid-March.
“Foreign currency borrowing will be more expensive at a time when banks must refinance almost half of their borrowings,” Moody’s analysts said.
Analysts said the prospect of anaemic 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.
“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.
The Central Bank of Nigeria (CBN) measures to support the naira currency squeeze lenders already hit by fallout from coronavirus and the oil price shock.
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.
Nwadialor at Tellimer expected a “significant pick-up” of non-performing loan ratios from 6.6 percent in the first quarter to an average of 10 percent for the full year – double the central bank’s benchmark.
-With Reuters report