Nigerian banks recorded worse risk factors in 2016 –Fitch

Though the Nigerian banking system posted fairy good financial results for 2016, despite the recession and other operating harsh conditions, its risk rose the highest in five years in the same year.

This revelation is contained in the latest assessment report of Nigerian banks by an international rating agency, Fitch Ratings, which it relessed on Wednesday.

The agency said that the banks in the country faced significant financial risk factors, most of which were not fully captured in the reported figures published by the regulators.

It says that Nigerian banks started showing signs of huge risk in 2015 when most of their credit facilities fell into the hands of some sectors that could not survive poor performance.

The banks’ loan credits went into hands that could not, in terms of return investment, fulfill their obligations and commitment to the system.

According to the report: “The banks’ health, in net income for 2016, was lifted by large one-off revaluation gains after Nigeria allowed its currency to suffer undecided devaluation in June.

“Though the banks made higher dollar core income (in naira terms) and booked sizeable foreign-currency trading income, it only offset rising impairment charges through that.

“But while the banks’ performance ratios improved towards the third quarter of 2016, we note that a substantial part of earnings were non-recurring and will be difficult to repeat in subsequent quarter without reforms.”

On the system’s performance in comparison with Nigeria’s macro-economic challenges, Fitch said the banks’ impaired loan ratios increased, significantly.

The banks’ loan back-up figures, also known as Asset-quality metrics (AM), were described by the rating agency as bad and which would have been even worse, but for some high levels of restructuring that the loans were later subjected to, “particularly as it relates to the troubled oil sector.”

Low reserve coverage and high levels of foreign currency lending had added to the concerns shown by both the regulators and monitoring agencies on performances of the banks.

Read also: Fitch downgrades Nigerian banks, can’t meet 2020 growth

On the year-end cash advancement ratios (CARs), Nigerian banks in 2016 witnessed a decline due to the twin pressures of risk-weighted assets, resulting from revaluation of dollar assets of the banks and temporary check on loan advancement in foreign currency.

It further stated: “Funding and liquidity risks continue to be high, while Loans/deposits ratios have been rising, but are not significant.

“The primary concern relates to FC liquidity, which remains tight despite the authorities’ attempts to normalise the foreign-exchange interbank market.

“For 2017, we believe there will be a slight easing on the banks’ operating environment reflecting some early-stage improvements on the macro-economic front.

“We also expect banks to remain profitable despite modest credit growth and we forecast further asset-quality deterioration, but at a slower pace.

“But the big question is whether there will be improvement in FC liquidity, though this, to a large extent, depends on factors beyond the banks’ control.”

However, the Cebtral Bank of Nigeria is yet to react on this assessment.

 

RipplesNigeria ….without borders, without fears

Click here to download the Ripples Nigeria App for latest updates

Join the conversation

Opinions

Support Ripples Nigeria, hold up solutions journalism

Balanced, fearless journalism driven by data comes at huge financial costs.

As a media platform, we hold leadership accountable and will not trade the right to press freedom and free speech for a piece of cake.

If you like what we do, and are ready to uphold solutions journalism, kindly donate to the Ripples Nigeria cause.

Your support would help to ensure that citizens and institutions continue to have free access to credible and reliable information for societal development.

Donate Now