As the temporary suspension and forbearance of debts owed to Nigerian banks end, the Fitch rating agency has expressed concern that Non-Performing Loans (NPLs) will increase for Emerging market (EM) banks in Europe, Middle East and Africa (EMEA).
In its new report titled: “What Investors Want to Know: Loan Moratoria in Emerging EMEA” Fitch outlines the extent to which these banks have utilised moratoria programmes and highlights risks to asset quality as forbearance measures are withdrawn.
Specifically, it stated that loan moratoria programmes have been extensively used across the EM EMEA region, with significant variance in uptake levels. According to the agency, utilisation has been highest in Georgia, Hungary and Nigeria (where between 40 per cent and 60 per cent of loans were subject to moratoria at peak levels) followed by South Africa and the UAE (each at close to 20 per cent).
“We view the risk of asset quality deterioration as most significant in Nigeria and also material in Turkey, Georgia, Hungary, South Africa, the UAE and Qatar.
“Emerging market banks in Europe, Middle East and Africa region should see meaningful increases in reported non-performing loan (NPL) ratios in 2021 with the expiration of moratoria and loan forbearance programmes, Fitch Ratings says,” it says.
Impaired loan ratios saw minimal increases in most EM EMEA markets in 2020, as regulators provided forbearance to banks in respect to the classification of loans subject to moratoria, masking asset quality deterioration.
NPLs have yet to increase sharply, as many forbearance measures are still in place or have only recently expired, the agency noted.
However, “we expect NPLs to increase across the region in 2021 as the moratoria programmes roll off and the effect of forbearance on loan classification is withdrawn.
“Any further extensions of payment holidays would be most likely be limited to the most vulnerable sectors,” the report observed.
Loan impairment charges increased in 2020 across all markets from the prior year as banks pro-actively increased loan provisions, which is positive for bank credit.
The expected economic recovery across the region in 2021-2022 according to Fitch, should mitigate the negative impact on the asset quality of loan seasoning following the downturn in 2020.
Meanwhile, experts believe that the Central Bank of Nigeria’s 65 per cent LDR policy has shored up Non-Performing Loans (NPLs) of Deposit Money Banks (DMBs) from 5.88 per cent at end of November 2020 to 6.01 per cent at the end of December 2020 — 20 per cent above the prudential maximum threshold of 5.0 per cent.
At the last Monetary Policy Committee (MPC) meeting, the committee had urged banks to strengthen their macro-prudential framework to bring NPLs below the prescribed benchmark.