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* Fitch forecasts 20%hit to Nigerian bank profits this year
* Reserve bank measures exacerbate lending, FX scarcity issues
* Economy faces COVID-19, oil price shock double whammy
By Chijioke Ohuocha and Karin Strohecker
ABUJA/LONDON, July 28 (Reuters) – Nigeria’s banks are expected to take a huge hit to profits and deal with increasing borrowing expenses this year as reserve bank measures to support the naira currency squeeze lending institutions already struck by fallout from coronavirus and the oil cost shock, analysts say.
Banks in Africa’s biggest economy – an essential for equity and fixed income frontier market investors – have discovered to navigate obstacles in a nation that has long had a hard time with dollar scarcities and several currency exchange rate.
But the prospect of anaemic growth, decreasing oil incomes, decreasing remittances and dollar lacks exacerbated by the main bank’s newest action aimed at curbing naira liquidity and currency speculation are putting pressure on financing by banks and the quality of existing properties.
The reserve bank has sucked as much as 900 billion naira out of the regional banking system given that raising the cash reserve ratio (CRR) by 5%to 27.5%in January, according to analysts’ estimations.
” General sentiment in the markets is that CRR debits are performed rather near to FX auctions to avoid the banks from providing big ticket FX needs at auctions,” said Nkemdilim Nwadialor at Tellimer Capital.
Those debits also obstruct wider financing, breaking reserve bank steps of reducing banks’ loan to deposit ratios, she stated. Reserve bank information revealed credit to the economic sector in April came by almost two-thirds from end-2019
” Banks are dealing with slow growth, fall in lending, an absence of Forex (Click Here For Best Forex Techniques) in the market and property quality problems,” said Mahin Dissanayake, senior director EMEA bank ratings at Fitch.
He expects banks’ revenues to drop a minimum of 20%this year, though he did not expect any to make a loss.
Some banks have actually currently suggested they expect a hit. In April, mid-tier lending institution Fidelity Bank warned 2020 profits would stop by 15%.
Bankers said loan providers were depending on existing clients to weather the storm as new loaning looked risky with the economy expected to tip back into economic downturn.
Fitch forecasts impaired loan ratios will increase greatly in 2020 with Nigerian banks the most exposed to tension 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 approximately 10%for the full year – double the reserve bank’s standard.
Some banks have currently announced strategies to tackle this. Mid-tier lender FCMB prepares to complete a restructuring of half its loan book at the end of April. A reserve bank policy maker forecasted last month that banks would restructure over a third of loans.
Moody’s warned in a note that dollar scarcities would heighten over the next 12-18 months – a duration when 49%of banks’ $7 billion foreign-currency loaning grows, leaving them susceptible.
Yields on dollar bonds released by Nigerian banks – a proxy for borrowing expenses – have actually retreated from the peaks scaled in the midst of the oil and coronavirus rout. Yet for lending institutions such as Zenith Bank, Fidelity Bank or Gain Access To Bank, the yields are still a minimum of double the level from mid-March.
” Foreign currency loaning will be more expensive at a time when banks should re-finance nearly half of their borrowings,” Moody’s analysts stated.
Reporting by Chijioke Ohuocha in Abuja and Karin Strohecker in
Extra reporting by Alexis Akwagyiram in Lagos, modifying by