Fitch Says Nigerian Banks Performing Well Despite Hurdles

Europen rating agency, Fitch Ratings, yesterday gave Nigerian banks clean bill of health, in spite of the Central Bank of Nigeria’s (CBN) tight monetary policy and new banking rules.

The rating agency, which announced its rating on its website, said that the rating was supported by continuing robust economic growth.

Fitch also said that it expected the banks’ performance and growth to moderate over the next 18 months due to CBN’s actions aimed at protecting the economy and the banking system.

”The CBN’s stance also shifted towards protecting the consumer through its revised rules on banking charges introduced in 2013.

”All these moves, however, led to weaker profitability and stemmed credit growth in first half of 2014, a trend that is likely to continue into 2015.

”All Fitch-rated Nigerian banks were profitable in 2013 and first half of 2014 but saw performance slip,” the agency said in the statement.

Fitch, however, said that there were a few outliers, typically the smaller banks, which outperformed the sector.

The agency said that earnings pressure was exacerbated by high operating costs at most banks due to a higher Asset Management Corporation of Nigeria (AMCON) levy and network expansion strategies.

It also added that banks were now seeing some asset quality deterioration with rising absolute Non Profit Loans (NPLs) that reflected fast loan growth since 2011.

Fitch said that most banks’ NPL ratios remained below the five per cent prescribed by the CBN but added that could be unsustainable in the long-run.

It said that banks were also seeing moderate liquidity pressure with rising loans and deposit ratios.

The agency said that several banks had successfully tapped the euro bond market to raise longer-term USD funding to meet the strong demand for USD loans from major corporates.

This, it also said, could expose the banks to foreign exchange related risks.

”We expect bank capitalisation to come under pressure due to Basel II implementation in 2014 and proposed new regulatory capital computation rules.

”As a result, Fitch believes regulatory total capital adequacy ratios could fall between 200bps-300bps this year.

”Most Fitch-rated banks report Fitch core capital (FCC) and Basel I regulatory capital ratios in excess of 20 per cent which is considered a comfortable level given the risks inherent in Nigeria. ”

Fitch said that the sovereign support drove most Nigerian banks’ Issuer Default Ratings (IDR).

It also said that out of nine Nigerian banks rated by Fitch on the international scale, six had long-term IDRs driven by potential state support.

The agency added that the banks included First Bank of Nigeria, United Bank for Africa, Diamond Bank, Union Bank, Fidelity Bank and First City Monument Bank.