By Audrey Lotechukwu
MON, 23 NOV, 2020-theGBJournal- Risks around Nigerian banking asset has shaped up to be the dominant theme in the coronavirus pandemic era.
Not even the news of improvement (50.2 points) in the Manufacturing Purchasing Managers Index (PMI) is comforting enough for the banks, as reflected in latest Moody’s Credit Outlook which forecast that Nigeria’s banking system asset quality pressures will persist.
The sector’s ratings are currently on Negative outlook on the back Nigeria’s sovereign downgrade (Nigeria ‘B’ from ‘B+, with negative outlook in April-Fitch).
Moody’s identified a number of challenges the banks face.
It said, ‘’although corporate distress could diminish as economic activity recovers, banks remain highly exposed to cyclical sectors such as the oil and gas sector, which accounts for 26% of banks’ total loans and exposes them to oil price volatility.
Other sectors such as general commerce at 6.6% of total loans, transport and storage at 2.5% of total loans, and agriculture at 4.8% of total loans will likely remain strained by the effects of the pandemic.
‘’Likewise, banks’ high foreign-currency lending, which constitutes around 40% of total loans, exposes their unhedged clients to naira depreciation, while high single-name concentration risk exposes them to spikes in nonperforming loans in case of default by a few borrowers.
Nigerian banks’ credit quality and revenue generation are heavily influenced by the health of Nigerian corporates, given that they account for more than 80% of banks’ loans. For Nigerian banks, the manufacturing sector, which accounted for 16.3% of banks’ total loans as of June 2020, is the second-largest sectorial exposure after oil and gas.’’
Moody’s notes that, improving economic activity in the manufacturing sector will benefit large banks such as Guaranty Trust Bank Plc (B2 negative, b21), First Bank of Nigeria Limited (B2 negative, b3), Zenith Bank Plc (B2 negative, b2) and United Bank for Africa Plc (B2 negative, b2), all of which have high exposure to the sector.
As of June 2020, Guaranty Trust’s exposure to the manufacturing sector was 20.2% of total loans, First Bank’s was 19.8%, Zenith Bank’s was 17.1% and United Bank for Africa’s was 14.5%.
‘’Nevertheless, we expect Nigerian banks’ nonperforming loans ratio to increase to 10%-12% in the next 12-18 months from 6.4% as of June 2020 -a figure that has been kept low, we believe, as a result of widespread loan restructuring and a one year moratorium on principal payments on all Central Bank of Nigeria intervention funds.’’