Moody’s Sees 18% NPL, Profit Slide Among Nigerian Banks, Rates Sector Stable

A new report by international rating agency- Moody’s Investors Service, on Wednesday warned that profitability among Nigerian bank could decline this year on account of lower yields on government securities, as well as a likely reduction in income from derivatives.
In the report, “Banking System Outlook — Nigeria; Liquidity risks have eased but earnings pressure and loan quality risks remain,” released on Wednesday, Moody’s expects foresees a marginal increase in nonperforming loans and associated provisions in the banking system.
This, it said, would come in a delayed response to sluggish economic growth experienced last year, just as it expects NPL within the industry to range between 15.5% and 18% of gross loans over a period of 12 to 18 months.
The report, nonetheless adjudged outlook for Nigerian banks stable as their foreign currency liquidity risks moderate due to rising oil prices and a more liberal foreign exchange policy.
The marginal decline in capital metrics over the period, it believes, would also be despite the stability in banks’ foreign currency funding and liquidity profiles, even as it expects asset quality to remain weak. A further deterioration in loan performance it assured, will be marginal as operating conditions slowly improve, even as it expects bank earnings to come under pressure.
The statement by Moody’s quoted Akin Majekodunmi a Vice President and Senior Credit Officer, at Moody’s, as saying “Operating conditions for the Nigeria’s banks will continue to gradually improve over the next 12 to 18 months but remain challenging.
“Nigeria’s growth prospects remain vulnerable to global oil prices, as crude oil will remain the nation’s largest export commodity and its main generator of foreign currency for the foreseeable future,” he added.
Moody’s forecasts a recovery in real GDP growth over the next two years, up from 0.8% last year, helping lending growth rise to around 10% after a 15.4% contraction in 2017.