The Central Bank of Nigeria (CBN) says banks in the country have strong capital buffers to weather the country’s economic crisis, amid fears over rising non performing loan ratios and tightening foreign currency liquidity.
Tokunbo Martins, the Central Bank’s director of banking supervision, speaking at a press conference after a banker’s committee meeting yesterday, also said the supply of foreign exchange for manufacturers will be improved.
“We discussed how to improve supply of foreign exchange to manufacturers, the life blood of this country for our economy, so that they can continue to produce, they don’t layoff and also achieve a good level of costing”, Cathy Echeozo, deputy group managing director, GTB said.
Nigeria, which has Africa’s biggest economy, is in recession as a slump in oil revenues has hammered public finances in the currency, driving up the prices of imported goods.
Banks are experiencing a sharp rise in non-performing loans (NPL) but in isolation asset-quality deterioration is not yet a negative driver for the 11 rated commercial banks in the country, Fitch Ratings said in a statement yesterday.
Other key concerns for Fitch are tightening foreign currency (FC) liquidity, weakening capital adequacy ratios and the sovereign’s ability to support banks, given its weaker financial flexibility.
“Worsening NPL trends in the sector have accelerated since end-2015 and we expect this to continue because operating conditions remain difficult,” Fitch said.
“If current challenges do not ease, the banks could face further downgrades. Our discussions with banks indicate that most impairment is concentrated in the private sector, which is affected by FC shortages and the depreciation of the naira.”
The Nigerian Central Bank’s latest financial stability report says sector NPLs rose to 11.7 percent of gross loans at end-June 2016 from 5.3 percent at end-2015.
The Nigerian Stock Exchange (NSE) Banking index has lost 0.61 percent year to date (Oct. 7), compared with a 2.82 percent fall in the broader all share index, data from the bourse shows.
United Bank for Africa or UBA, the only Nigerian lender that has released third quarter (Q3) results, reported impairment charges for bad loans increased by 147 percent year on year (yoy) to N9.1 billion from N3.68 billion, although it declined 60 percent quarter on quarter (QoQ).
Fitch notes that NPLs are not evenly spread among Nigerian banks and sector NPL ratios are distorted by some exceptionally high concentrations.
“For example, First Bank of Nigeria (FBNH), the country’s largest bank, reported a 23 percent NPL ratio at end-June 2016,” Fitch said.
Borrowers are struggling to access scarce foreign currency and those dependent on naira income are finding it hard to meet escalating repayment costs triggered by the depreciation.
Fitch also notes that sector NPLs would have been higher if banks had not undertaken widespread restructuring of loans to the oil and gas sector, which accounts for 30 percent of total sector loans.
Asset-quality indicators in these portfolios are therefore holding up as borrowers are able to comply with generous loan maturity extensions.
However, the CBN has warned that it is expecting continued deterioration across banks’ oil and gas portfolios during the second half of 2016 as the sector faces sustained low oil prices and production disruptions.
The CBN has set an informal maximum 5 percent NPL ratio for all banks.
Once this is breached, the regulator can impose measures to boost capital, such as restrictions on dividend payments.
The CBN says that unreserved NPLs represented a high 31 percent of regulatory capital in the sector at end-June 2016, far higher than the 6 percent reported at end-2015.
This puts further pressure on capital ratios, which have been affected by currency devaluation, causing some banks to report limited buffers over regulatory minimums.
Data published by the National Bureau of Statistics (NBS) shows that Nigeria’s economy contracted by 2 percent in the second quarter of 2016, following a 0.4 percent contraction in 1Q16.
“We expect real GDP to contract by 1 percent in 2016, against our previous forecast of a 1.5 percent expansion. We do expect a limited bounce-back and our 2017 forecast foresees a recovery to 2.6 percent. But the medium-term growth outlook remains significantly lower than the 5.6 percent growth of 2010-2014,” Fitch said.
On the issue of the limit on the withdrawal on naira debit card abroad, Martins the director, banking supervision, at the CBN, says the apex bank and the bankers committee insist on the $50,000 limit withdrawal per annum.
“All your cards are linked to a particular BVN and that BVN is only allowed to withdraw $50,000 a year. If people continue to bridge that rule, they will lose money and lose access to foreign exchange entirely,” she said.
PATRICK ATUANYA & HOPE MOSES-ASHIKE