There is chaos in Nigerian banks as reports say it is experiencing a full-blown financial crisis due to failed fiscal and monetary policies lead to the credit crunch.
It was reported that seven banks may be under-capitalised as they are grappling with a devaluation of the naira, rising bad loans and an oil-dependent economy that’s set to record its first annual contraction in more than two decades.
“Our acid test reveals seven under-capitalized banks with a deficit of as much as N1 trillion ($3.2 billion) in the financial system.”
According to Arqaam, a stress test identified one of the banks as the most undercapitalized lender with Unity Bank, Diamond Bank Plc, Skye Bank, FCMB Group Plc, Sterling Bank and Fidelity Bank Plc also showing deficits if they were to fully provide for non-performing loans.
However, a spokesman for Diamond Bank, Ikechukwu Mike Omeife, disputed this via a phone conversation with Vanguard quote: “Our bank is strong and our capital adequacy ratio and non-performing loans are within the statutory requirements.”
Reports coming from one of the global rating agencies, Moody’s Investors Service Monday, October 10, said Zenith Bank Plc, Guaranty Trust Bank Plc, Access Bank Plc, United Bank for Africa Plc (UBA), and First Bank of Nigeria Limited, have all been affected by the weakening domestic operating environment following the prolonged period of lower oil and gas prices.
According to Moody’s Vice President-Senior Analyst and co-author of the report, Akin Majekodunmi, despite shared credit challenges, there are differences among the banks in terms of their respective abilities to withstand weak economic growth and volatile monetary conditions, which are reflected in their differing baseline credit assessments (BCAs) that range from b1 to b3.
“Overall, Moody’s views Zenith and GTBank as best placed to cope, followed by Access bank and UBA, and then FBN,” he said.
Publications which confirms this assertion said that the rating agency has assigned first-time ratings to Zenith, GTBank, UBA and FBN, which account for approximately 48% of Nigeria’s banking assets.
On buy versus sell rates, analysts rates FBN, Skye, Sterling, Stanbic IBTC Holdings Plc, Unity and Ecobank Transnational Inc. as sell Zenith, Access, and United Banks are rated buy.
Nevertheless, the rating agencies expect non-performing loans (NPLs) to increase to about 12% in next 12 months, compared to the 5% of December 2015 recorded in CBN data. The forecast rise in NPLs reportedly stems from lower oil prices, a weakening naira, slower GDP growth and rising inflation.
A statement from Moody says;
“The agency expects foreign currency deposits, which have fallen around 30 percent since the start of 2015, to stabilise over the next 12 to 18 months as the impact of lower oil prices and the central bank’s adoption of a Treasury Single Account fades.
“Moody’s expects loss-absorbing capital buffers to hold steady on account of muted loan growth of around 5-10 percent over the next 12 to 18 months. However, as a result of this weak loan growth, net interest income and fee and commission income will remain depressed.”
The statement also added that Nigeria’s economic potential remains strong and had continued to attract investment, while depositor confidence and local currency buffers at the banks also remain robust.