Fitch Ratings has predicted 20 per cent hit to Nigerian bank revenues this year. The commercial lenders are expected to take a big hit to revenues and face rising borrowing costs this year as central bank measures to support the naira currency squeeze lenders already hit by fallout from coronavirus and the oil price shock, analysts say.
Banks in Africa’s largest economy – a mainstay for equity and fixed income frontier market investors – have learned to navigate challenges in a country that has long struggled with dollar shortages and multiple exchange rates.
But the prospect of anaemic growth, dwindling oil revenues, declining remittances and dollar shortages exacerbated by the central bank’s latest action aimed at curbing naira liquidity and currency speculation are putting pressure on lending by banks and the quality of existing assets.
The central bank has sucked as much as 900 billion naira out of the local banking system since raising the cash reserve ratio (CRR) by five per cent to 27.5 per cent in January, according to analysts’ calculations.
“General sentiment in the markets is that CRR debits are carried out quite close to FX auctions to prevent the banks from presenting large ticket FX demands at auctions,” said Nkemdilim Nwadialor at Tellimer Capital.
Those debits also hamper wider lending, going against central bank measures of lowering banks’ loan to deposit ratios, she said. Central bank data showed credit to the private sector in April dropped by nearly two-thirds from end-2019.
