International credit rating agency, Fitch Ratings, has noted in its latest outlook for the Nigerian banking sector that banks across the country face acute threats from oil price slump and the vast impact of the coronavirus crisis on the economy.
Asset quality deterioration resulting from huge lending to the oil and gas industry is the gravest risk to Nigeria’s financial sector, the New York-based organisation said Wednesday.
Oil and gas accounts form the lion share of bank’s private sector lending, making up about 20% of total credit in 2019, the statistics office said two days ago.
At N219.47 billion, it posted the highest non-performing loan figure across all the sectors of the economy at the end of last year.
A statement from the agency says “operating environment risks inevitably rise in Nigeria when oil prices fall. Oil exports represent 95% of the country’s export revenue and strongly influence the broader economy. Falling oil revenue may also lead to further currency devaluation. Accordingly, the slump in oil prices raises the risk of a recession.”
Fitch envisaged that the forbearance measures taken by the apex bank would provide succour to businesses and households while stimulating credit flow across the economy.
Recently, the agency lowered the Long-Term Issuer Default Ratings (IDRs) of three Nigerian banks from ‘B+’ to ‘B-‘ and included both the Viability Ratings and the IDRs of another group of ten Nigerian banks on the Rating Watch Negative list.
Fitch stated that “the resilience of banks’ asset quality, profitability and capital during the economic downturn will influence, among other considerations, how we resolve the Rating Watches.”