Banking sector total assets forecast at N57.8trn on deposit growth in 2021 —Report

AS total assets of Deposit Money Banks (DMBs) expand strongly, driven by growth in deposits, Afrinvest (West) Africa Limited has forecast that the sector’s total assets will reach  N57.8 trillion in 2021 representing a 6.4 percent growth.

Specifically, the latest Afrinvest’s 2020 Nigerian Banking Sector Report titled: ‘The insecurity challenges of poverty,’ noted that from banks’ earnings, there was a 6.8 per cent growth in total assets in 2016 from N33.9 trillion to N36.2 trillion in 2017. The sector recorded a 13.2 per cent growth in 2018 from N36.2 trillion the previous year to N41.0 trillion. In 2019, the banking sector’s total assets according to the Lagos based investment research firm, grew by 15.9 per cent from N41 trillion to N47.5 trillion.

Also, from 13 banks listed in the Nigerian Stock Exchange (NSE) representing the sector, a moderate 14.3 per cent growth in total assets to N54.3 trillion is predicted in 2020 from N47.5 trillion recorded the previous year.

Total deposits rose sharply following significant Open Market Operation (OMO) maturities from N28.9 trillion in 2018 to N35.8 trillion in 2010. It is forecast to reach N38.1 trillion in 2021.

Similarly, analysts from the firm have reiterated the need for the federal government to be concerned about the country’s rising debt profile, saying it is becoming unsustainable.

The Group Managing Director, Afrinvest West Africa, Mr. Ike Chioke, expressed concern about the nation’s debt stock during the presentation of the report.

Commenting on the country’s debt profile, Chioke said: “Our debt position has risen from N15.7 trillion in 2016 to now approaching N38 trillion estimated at 2020. Another part of the component of debt, which is often not visible to most people, is the ways and means, which is the Central Bank of Nigeria’s printing money and giving to the government and that has also risen dramatically from N2.2 trillion in 2016, and is currently estimated at N10 trillion in 2020.

“They are very worrying numbers because you can see that the federal government’s debt-to-GDP ratio is now at 28 per cent and while that may seem reasonable, by most accounts, it is more worrying when you look at debt sustainability and compare our debt service to revenue.

“In 2016, debt service to revenue was only 44.6 per cent and in 2020 we are looking at debt service to revenue of 84.8 per cent which is a very worrisome number indeed.”

On findings about the banking sector in the report, Chioke expressed optimism about the banking sector.

He said: “Total industry assets, we are projecting that the industry would end the year with N54.3 trillion in assets, climbing 14.3 per cent from 2019. And in 2021, we are projecting a further growth to about N57.8 trillion in industry assets.

“In terms of industry deposits, we have seen it rise sharply, following significant open market operations (OMO) maturities. So, this year we are looking at about N35.8 trillion of industry deposits and that would continue to climb to N38.1 trillion of deposits into 2021.”

Speaking about the CBN’s minimum loan-to-deposit ratio policy, he said: “When you look at the loan-to-deposit ratio, the CBN threshold is at 65 per cent and quite a number of the tier 1 banks are below that threshold except for Zenith Bank and when you come to the tier 2 banks, only Fidelity Bank, FCMB and Sterling Bank are above with Stanbic IBTC, Wema Bank and Unity Bank below.

“So, it tells that the banks are struggling to meet the requirements of this policy and we can understand that because when you look at numbers of NPLs based on first-half numbers you can see that with the threshold at five per cent.

“The CBN recommends banks should not exceed that, but quite a few banks have tended above that number.

“Ecobank’s non-performing loan is at 9.9 per cent, FBN Holdings at 8.8 per cent, GTBank’s is at 6.5 per cent and for tier 2 banks, Stanbic IBTC is at 5.2 per cent with the rest below the alignment.

“So that can be trouble because that would put into question the demand to increase loans due to LDR but you are doing it in the middle of a troubled economic environment, which means it is more difficult for the borrowers to perform on the loans.”

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