Loan Risks Remain In Nigerian Banks—Moody’s

–Says Skye Bank Takeover Good For Sector

Tayo Olanipekun

Nigerian banks’ earnings will come under pressure and capital metrics will decline marginally over the next 12 to 18 months, Moody’s has said.

It noted in its latest Nigeria Banking System Outlook that the sector’s asset quality will remain weak with deterioration in loan performance that is marginal as operating conditions slowly improve.

Moody identified concentrations of loans to single names like the case with the telecommunication company, 9mobile, as well as to single sectors, as factors that will continue to aggravate asset risk for the banks.

“Nonperforming loans (NPLs) will increase marginally in a delayed response to sluggish economic growth in 2017. We expect banking system NPLs to range between 15.5 per cent and 18 per cent over our outlook period,” the body noted.

This is as Moody’s Vice President and Banking Analyst, Akintunde Majekodunmi, in Lagos on Monday, applauded the Apex Bank’s withdrawal of Skye Bank’s operating license, saying it will remove systemic risks for the Nigerian banking system.

“Taking away Skye Bank Plc’s license and transferring its assets and liabilities to Polaris Bank, a newly created bridge bank, will limit the threat of contagion to Nigeria’s banking system from the failure of a Systemically Important Bank; this shift is credit positive in that it will contain systemic risks for the Nigerian banking system as a whole,” Majekodunmi said.

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About the nation’s economy, it forecasts a continued recovery in real GDP growth over the next two years, up from 0.8 per cent last year with lending growth rise of around 10 per cent after a 15.4 per cent contraction in 2017.

The rating body, also said that nation’s foreign currency liquidity risks will continue to stabilise over the same period, supported by recovering global oil prices and a more liberal foreign exchange market.

It noted that though it is declining, inflation remains high but will continue to
gradually subside as liquidity in foreign-exchange markets continues to stabilise.

“We publicly rate seven banks, which represent 68 per cent of total assets in the Nigerian banking system. The average (asset-weighted) local currency deposit rating for Nigerian banks is B2, with a baseline credit assessment (BCA) of b2, in line with our average BCA for Sub-Saharan African banks,” said Moody’s.

The rated banks are: Zenith Bank plc, b2 Aa3.ng/NG-1 B2 B3 Stable; First Bank of Nigeria Limited, b3 A2.ng/NG-1 B2 B3 Negative; United Bank for Africa Plc b2 A1.ng/NG-1 B2 B3 Stable, and Access Bank Plc, b2 A1.ng/NG-1 B2 B3 Stable.

Others are Guaranty Trust Bank plc, b2 Aa3.ng/NG-1 B2 B3 Stable; Union Bank of Nigeria plc, b3 A2.ng/NG-1 B2 B3 Stable, and Sterling Bank Plc,b3 A2.ng/NG-1 B2 B3 Stable.

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