Posted by Tony Chukwunyem
Although the rising volume of Non-Performing Loans (NPLs) in the industry continues to be a major cause for concern, the current stability achieved in foreign exchange market due to the recent foreign exchange measures introduced by the Central Bank of Nigeria (CBN) seems to have boosted prospects for Nigeria banks, according to analysts’ findings.
A report issued in March by international credit rating agency, Fitch Ratings, had indicated that despite the efforts of the banking watchdog, the banking industry would continue to be under pressure in 2017.
The agency stated: “The outlook for the rest of 2017 is not much brighter. We believe that the banks will continue to face extremely tight FX liquidity despite the authorities’ best efforts to normalise the foreign-exchange interbank market and improve the supply of US dollars.”
However, following the CBN’s establishment of a forex window for investors and exporters on April 21, coupled with the apex bank’s sustained interventions, which have ensured adequate dollar liquidity in the market, financial analysts are now predicting that with the forex challenge addressed, lenders will perform better than they did in 2016.
Specifically, in their May presentation at the Lagos Business School (LBS), experts at Financial Derivatives Company Limited predicted that increased availability of forex will result in more profit for banks.
They said: “Forex availability and price will boost profits… earnings will be on base year effects.”
Hinting at more favourable conditions ahead for the industry, the analysts further noted: “Minimum wage increase will push up disposable income.”
Similarly, experts at a forex seminar organised by Access Bank earlier this month, stated that CBN’s measures had improved dollar liquidity in the forex market, a development, they agreed, would positively impact on the banking industry.
Indeed, the experts disclosed that accessing foreign exchange was no longer a challenge for banks, but what was giving lenders a problem these days was finding the naira to pay for dollars that they bid for.
According to the experts, the establishment of the Investors’ and Exporters’ (I&E) forex window has helped in restoring confidence to the system, resulting in more offers than bids at the foreign exchange market.
Commenting on the window, the Managing Director of Access Bank, Mr. Herbert Wigwe, said that it had helped to foster the timely execution of all eligible transactions, adding that this had led to increased supply of foreign exchange to the market, which had narrowed the spread between the official and parallel market rates as well as a decline in the inflation rate.
Stressing that lenders were pleased with the development, the Access Bank boss pointed out that the industry was not comfortable with volatile and rising exchange rates.
In their “Unity Bank Digest” report released last weekend, analysts at FDC stated: “The naira appreciated by 2.6 per cent in the parallel market to N380/$, driven by the CBN’s aggressive forex intervention.
The banking watchdog has sold $6.35 billion so far in 2017.
The Investor Window rate currently stands at N379.69/$ and averaged N382/$ in May.
We expect naira to remain strong in the short run, provided that CBN maintains frequent supply interventions.”
Despite the tough economy, first quarter 2017 results announced by Tier I, lenders such as GTBank, Zenith Bank, UBA, Access Bank and First Bank, show that they raked in combined profit of N145 billion, which is N36 billion more than their reported total profits of N109 billion in the first quarter of 2016.
Interestingly, however, in its report on the industry, Fitch Ratings stated: “The banks’ healthy 2016 net income was lifted by large one-off revaluation gains after Nigeria allowed its currency to devalue last June.
The lenders also made higher US dollar core income (in naira terms) and booked sizeable foreign-currency (FC) trading income, which offset rising impairment charges.”
Also, another top credit rating agency, Moody’s Investors Service, in a recent report, maintained its stable outlook on the Nigerian banking system, even as it said that the Nigerian government will continue to find solutions to the dollar shortages that have affected the economy.
In the report entitled: “Banking System Outlook: Nigeria,” the Moody’s said the stable outlook on Nigerian banks reflects its view that acute foreign-currency shortages will gradually ease, though loan risks will remain high