Profitability & asset quality of Nigerian Banks threatened by 23% of their loans —Agusto

Twenty-three per cent of banks’ loan portfolio might put the asset quality and future profitability of the sector in limbo, credit rating agency, Agusto & Co said in its latest industry commentary, the Nigerian Banking Industry Report 2020, released on Monday.

“Approximately 23 per cent of the industry’s gross loans and advances were classified in the stage two category as at 31 December 2019, according to the International Financial Reporting Standard 9.

“As at the same date, four out of the twenty-four banks covered in the report had stage two loans to gross loans ratios above the 23 per cent industry’s average.

“Agusto & Co. believes that the volume of stage-two loans is a threat to the industry’s asset quality and future profitability. Stage-two loans primarily comprise exposures with an increase in the associated credit risk compared to when the loan was disbursed,” the document said.

Read also: Nigerian banks face forex shortage up to $5bn –Moody’s

It noted the impact of the coronavirus pandemic on businesses and how it had spurred a surge in the size of stage-two loans.

This credit category is prone to adverse migrations amid a lengthy macroeconomic downturn, Agusto & Co said.

The sector had restructured nearly 50 per cent or N7.8 trillion of the loan portfolio as of the first half of this year after the Central Bank of Nigeria granted forbearance in March, enabling lenders to restructure loans to businesses that had been affected by the virus outbreak.

The credit rating agency stated the forbearance was hoped to check the sector’s impaired loan, which was 7.6 per cent at the end of last year in the short term.

It expressed worry over the performance of the said loans considering that the curve of the outbreak was yet to be flattened and a new wave of the virus might be round the corner.

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