An international rating agency, the Moody’s Investors Services has looked into the Nigerian banking system and has warned that losses may come about due to the bad loans which is at a high rate in the banking industry of Nigeria.
While having an outlook on how the Nigerian banks would fare in the African banking industry, the Moody’s stated that so many banks and financial institutions in Nigeria would enjoy the improved foreign currency liquidity because of the higher oil prices. However, they will confront the problem of rising loan quality.
The company further stated that the higher oil prices and the partial liberalization of the foreign exchange market has eased the pressures on “unhedged” borrowers, also, it has stabled and normalized foreign-currency liquidity.
Asset risks still remain high as the banks continues to tackle and confront legacy issues; similarly, the earnings remains under pressure as loss-loss provisions remain high.
Capital buffers are strong for the bigger banks in the industry and it happens to be fragile for the smaller banks.”
Moody’s warning is becoming a serious concern after a similar concern was expressed by its global rating counterpart, Fitch Ratings on the Nigerian banks.
In the Fitch latest credit ratings, it identified 3 Nigerian Tier-1 banks, namely Access Bank, Guarantee Trust Bank (GT Bank) and the United Bank for Africa (UBA). Fitch warned that these Nigerian banks are likely to face and encounter pressure on margins and capital.
“The fragile economic recovery restrains banks’ growth prospects and asset quality. Operating conditions are still difficult for banks. “Despite stronger oil prices in second half of 2018 (H2’18) supporting the economic growth, credit demand is therefore weak and many banks face intense pressure on the margins and capital.
“Fitch believes that sovereign support to the banks in Nigeria cannot be depended on, neither can they be relied upon due to Nigeria’s weak ability to provide support, particularly in the area of foreign currency.
In addition, there has been no record of clear messages of support from the legal authorities regarding their interest, enthusiasm and willingness to support the banking system in the country.
“Therefore, Support Rating Floor of all the Nigerian banks is on ‘No Floor’ and all the support Ratings are ‘5’.
This reflects our view that the senior creditors cannot be relied or trusted on receiving the full and timely support from the Nigerian sovereign if probably, any of the banks later turns out to become non-viable”, Fitch stated.
Meanwhile, the international rating agency, Moody’s have projected a total of 2.3 percent growth for the Nigeria’s economy in the year, 2019, and another 3.8 percent growth for the African economy.
Noting that there will be more stable oil prices in Nigeria which will help the country in the area of its economy in the forthcoming year, 2019.
While affirming a ‘Stable’ outlook for the banks in Africa, Moody’s highlighted risks to the banks on the African continent to factors which include the political uncertainty and instability and the rising US interest rates.