Banking Sector Update: Bad loan rises further, hits N2.3trn

*Credit to private sector in sluggish growth

*But e-payment transactions rise 3.2%

Against the backdrop of a challenging operating environment the banking sector performance update shows escalating bad loans as businesses that borrowed money struggle to survive.

Consequently, the latest data from the National Bureau of Statistics, NBS, revealed that value of Non-Performing Loans (NPLs) in the third quarter of 2018, Q3’18, increased by N400 billion or 21 percent to N2.3 trillion from N1.9 trillion in Q2’18 though it also indicated a slight four percent decline when compared to N2.4 trillion recorded in the corresponding period of 2017.

This corroborates the most recent report of global rating agency, Moody’s which warned that losses to bad loans remain high in Nigeria’s banking industry. In its 2019 Outlook on African Banks, Moody’s stated that while Nigerian banks now enjoy improved foreign currency liquidity due to higher oil prices, they however face the challenge of rising loan quality.

The company said: “Higher oil prices and partial liberalisation of the foreign-exchange market have eased pressures on “unhedged” borrowers and normalized foreign-currency liquidity. Asset risks nonetheless remain high as banks continue to tackle legacy issues; similarly, earnings remain under pressure as loss-loss provisions remain elevated. Capital buffers are strong for the bigger banks, but weaker for smaller bank.”

While affirming a ‘Stable’ outlook for African Banks, Moody’s highlighted risks to banks on the continent to include rising US interest rates and political uncertainty in some countries including Nigeria.

 It stated: Our outlook for African banks is stable but risks are tilted to the downside though banking prospects remain strong over the longer term Risks to the operating environment relate to: Rising US interest rates leading to capital outflows across emerging markets, in conjunction with rising government debt and currency depreciation, could significantly harm banks’ loan quality and access to foreign currency; Political uncertainty and risk of social unrest are an ever-present challenge for Africa; South Africa, Tanzania, Nigeria are some of the countries that face such challenges, which could weaken investor and consumer confidence; External shocks such as falling commodity prices, drought, or an escalation of global trade wars, could hurt African corporates and their ability to repay debt.”

Moody’s warning is coming on heels of similar concern expressed by its global rating companion, Fitch Ratings on the Nigerian banks. In its latest credit rating for three Nigerian Tier-1 banks, namely Access Bank, GTBank and UBA, Fitch warned that Nigerian banks face 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 economic growth, credit demand is weak and banks face pressure on margins and capital.

“Fitch believes that sovereign support to Nigerian banks cannot be relied on given Nigeria’s weak ability to provide support, particularly in foreign currency. In addition, there are no clear messages of support from the authorities regarding their willingness to support the banking system.

“Therefore, the Support Rating Floor of all Nigerian banks is ‘No Floor’ and all Support Ratings are ‘5’. This reflects our view that senior creditors cannot rely on receiving full and timely extraordinary support from the Nigerian sovereign if any of the banks become non-viable”, Fitch stated.

 Banks give more loans

However, despite the rising bad loans the NBS also disclosed in the report titled, ‘Selected Banking Sector Data’, for the period, that banks credit to the private sector rose by two percent to N15.6 trillion in Q3’18.

 But Vanguard analysis of the bureau’s data revealed that on quarter-on-quarter (QoQ) basis, though the figure rose from N15.3 trillion recorded in Q2’18 it declined by 1.3 percent when compared to N15.8 trillion allocated in the corresponding period of 2017, Q3’17.

The report stated: “In terms of credit to private sector, total value of credit allocated by banks stood at N15.59 trillion as at Q3’18. Oil & gas and manufacturing sectors got credit allocation of N3.59 trillion and N2.15 trillion to record the highest credit allocation as at the period under review.”

 E-payment rises

Also, in the period under review, value of electronic payment transactions stood at N33.95 trillion, representing 3.2 percent increases from N32.9 trillion recorded in the preceding quarter and 31.6 percent against the corresponding quarter in 2017. On the e-payment statistics the bureau stated: “A total volume of 5.3 billion transactions valued at N33.95trn were recorded in Q3 2018 as data on Electronic Payment Channels in the Nigerian banking sector. NIBSS Instant Payments transactions dominated, with 127 million volume of transactions valued at N19.96 trillion Further analysis showed that the number of banks’ contract staff rose by 1.0 percent to 44,484 in Q3’18 from 43,955 in Q2’18 and up by 66 percent when compared to 27,032 in Q3’17.

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