Capital Adequacy Ratios of Nigerian Banks Seriously at Risk

Nigerian Banks

By Dipo Olowookere

A banking analyst with Lagos-based Chapel Hill Denham, Aderonke Akinsola, has disclosed that the present coronavirus pandemic could make banks in Nigeria struggle with poor asset quality in the 2020 financial year.

Akinsola made this disclosure to Bloomberg during a phone chat on the impact of the fast-spreading disease on the nation’s economy.

On Thursday, Nigeria confirmed fresh four cases of the COVID-19, a day after five new case were announced, bringing the total number of people infected with the virus to 12.

Speaking with Bloomberg, Akinsola said the present conditions “pose downside risks to the profitability of banks in 2020, mainly given the likely impact on asset quality and loan growth,” adding that, “Capital adequacy ratios of banks are more at risk amid the current macro realities.”

Nigerian banks are still trying to recover from an economic contraction in 2016 and are now faced with a triple whammy of coronavirus, plunging oil prices and volatile markets that could further delay progress, Bloomberg said in its report on Monday.

The virus has led to the crashing of crude oil prices at the global market, trading below $30 per barrel at the moment.

On Wednesday, Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, hinted that the oil benchmark for the 2020 budget has been slashed to $30 per barrel from $57 per barrel.

Quoting a banking analyst at ARM Investment Managers in Lagos, Mr Emmanuel Adeleke, Bloomberg said most Nigerian lenders have their oil exposure hedged at $40-$50 a barrel, which will mean they would have to make provisions if prices remain where they are.

As a result of this, Mr Adeleke “expects flat growth in earnings for most banks this year.”

In the 2019 fiscal year, four of the big five lenders in the country; Zenith Bank, GTBank, Access Bank and UBA, posted growths in revenue as well as profit. In fact, Zenith Bank became the first bank in Nigeria to rake a net profit of over N200 billion.

However, this may be threatened by COVID-19 as businesses in the country, including schools, companies, bars, religious houses and others have already been directed to shut down.

On Monday, the Central Bank of Nigeria (CBN) announced steps taken to help the economy remain vibrant. It said it was providing a N50 billion intervention fund to critical sectors, including health and SMEs.

It further announced the extension of a one-year moratorium on the repayment of all principal debt repayments as well as cutting of interest rates on its intervention funds to 5 percent from 9 percent.

On Wednesday, the apex bank further announced the injection of N1 trillion to support the economy, noting that it would have a meeting with bank chiefs on Saturday on how to spread the money.

In the second quarter of 2016, Nigeria slipped into recession, but got out of it a year later. Since then, the country, which largely depends on crude oil for foreign exchange, has been undergoing recovery.

But the present situation at the oil market is already threatening the Africa’s largest producer of the commodity and there are fears that the country may again fall into recession in the next quarter after its rival, South Africa, slumped into recession for the second time under the present administration of Mr Cyril Ramaphosa last quarter.

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan. Mr Olowookere can be reached via dipo.olowookere@businesspost.ng

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