GLOBAL ratings agency, Fitch has said that the Nigerian banking sector has performed better than expected since the start of the Coronavirus pandemic, limiting the rise in credit losses this year.
This, it attributed to a combination of debt relief afforded to customers, a stabilisation in oil prices, the hedging of financial exposures and the widespread restructuring of loans to the sector following the 2015 crisis.
However, the agency stated in a new report, ‘What Investors Want to Know: Nigerian Banks,’ that Nigerian bank asset quality is expected to weaken over the next 12 months-18 months.
According to Fitch, debt relief measures have prevented a material rise in impaired loans in 2020, but it forecasts the average impaired loan ratio to range between 10 per cent — 12 per cent by year end (YE)21 as these measures end.
It says earnings are expected to recover gradually with the economy but remain exposed to further economic shocks from oil price volatility.
“Bank asset quality has historically fallen with oil prices; the oil sector represented 28 per cent of loans at end-1H20. Upstream and midstream segments (nearly seven per cent of gross loans) have been particularly affected by low oil prices and production cuts.
“The credit loss ratio for the banks under our coverage rose by 50 basis points (bp) to 110bp in 1H20 but remained well below the 380bp peak in 2016 (following the 2015 crisis). The low ratio mainly reflects regulatory forbearance on coronavirus-related restructured loans and associated provisioning policy being less than proactive,” it stated
In addition to solid revaluation gains and trading gains, the containment of credit losses will support profitability. With the expiry of relief measures and persistently weak oil prices, the agency believes the average credit loss ratio will lean somewhat.
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