Banking
Nigerian Banks’ Earnings, NPL Risk Still Under Pressure—Moody’s
By Modupe Gbadeyanka
Renowned global credit rating company, Moody’s, has warned that the earnings and Non-Performing Loans (NPLs) of banks operating in Nigeria are still under pressure despite having outlook as an improving operating environment.
In its latest outlook for the nation’s banking sector, Moody’s said, “Nigerian banks’ profitability will nevertheless decline on account of lower yields on government securities, as well as a likely reduction in income from derivatives.”
In the report released yesterday, the rating agency said explained that outlook for the Nigerian banking system remains stable as their foreign currency liquidity risks moderate due to rising oil prices and a more liberal foreign exchange policy.
Business Post reports that the yields on Treasury bills (T-bills) have been declining in recent months as major economic indicators turn positive. The yields have dropped from over 18 percent in the last one year to 10.60 percent as at Wednesday.
Likewise, returns on Federal Government of Nigeria (FGN) Bonds have also nosedived to around 13 percent from over 14 percent previously.
Analysts explained that as the economy recovers and attracts more confidence of foreign investors, earnings on government securities drop.
This is supported by recovering global oil prices and a more liberal foreign exchange market.
However, Moody’s expects banks’ earnings to come under pressure, capital metrics to decline marginally, and asset quality to remain weak between the next 12-18 months, resulting from declining yields on government securities, the introduction of new IFRS 9 accounting standards, and increase in NPLs of the banks.
“Operating conditions for the Nigeria’s banks will continue to gradually improve over the next 12 to 18 months, but remain challenging,” the Vice President and Senior Credit Officer at Moody’s, Mr Akin Majekodunmi, disclosed at a conference in Lagos.
“Nigeria’s growth prospects remain vulnerable to global oil prices, as crude oil will remain the nation’s largest export commodity and its main generator of foreign currency for the foreseeable future,” he added.
However, Moody’s expects the pressure on the Nigerian banks’ profitability to be offset partially by a recovery in loan growth and transaction income from the expansion of digital platforms, and the ease of foreign currency shortages.
Foreign currency loans accounted for 40.7 percent of the system wide loan book at the end of the third quarter of 2017, down from 50 percent at year-end 2016.
A significant proportion, some 10 percent to 20 percent, has been dispersed to borrowers with little or no foreign currency income.
These borrowers are vulnerable to fluctuations in the naira/dollar exchange rate as a depreciation of the naira reduces their repayment capacity, Moody’s said.
Moody’s conducted a scenario analysis to gauge the solvency of banks under both a base-case and a low-probability highly stressed scenario that is roughly equivalent to a 1-in-25 year event.
“Under our base-case (or most likely) scenario, we expect the system-wide capital ratio to remain roughly stable over a two-year horizon. This is driven by an increase in loan losses, due to an increase in system-wide non-performing loans and in risk-weighted assets, driven by loan growth.
“This impact would be offset by pre-provision income leaving the capital ratio virtually unchanged at 17.0%,” Moody’s said.
In the report titled ‘Banking System Outlook: Nigeria,’ Moody’s forecasts a recovery in real Gross Domestic Product (GDP) growth over the next two years, up from 0.8 percent last year, helping lending growth rise to around 10 percent after a 15.4 percent contraction in 2017.
On the weakening of asset risk, Moody’s expects only a moderate deterioration in loan performance given the lagging effect of subdued economic growth – continued asset risk vulnerability from banks’ large exposures to the oil and gas sector and foreign currency borrowers in general capital weakening .
The banks’ capital levels are projected by the rating body to decline moderately on account of the introduction of IFRS 9. While it expects provisioning costs to be absorbed by pre-provision income.
On the stability of funding and liquidity, the Banks are projected to continue to benefit from stable deposit funding and solid liquidity buffers in local currency.
The agency also expects banking system income to be supported by both a recovery in loan growth to 10 percent over 2018 and an increase in noninterest income/transactional income through the promotion of e-banking platforms.
By Adedapo Adesanya
Global financial payments giant, Visa, has made a strategic investment of $10 million in Nigerian fintech unicorn, Moniepoint, to expand its services and deepen financial inclusion on the African continent.
This development comes three months after Moniepoint raised $110 million in a Series C funding round that made the company a unicorn.
With the new play, Visa joins other investors, including Development Partners International, Google’s Africa Investment Fund, Verod Capital, Lightrock, QED Investors, Novastar Ventures, British International Investment (BII), FMO (the Dutch entrepreneurial development bank), Global Ventures and Endeavor Catalyst as equity partners.
This partnership will combine Moniepoint’s local expertise and innovative business model with Visa’s global resources and capabilities to offer payment solutions to businesses and entities.
Moniepoint provides banking and payment services to small and medium businesses and retail banking. It is one of the market leaders in Nigeria’s agent banking space, with over 300,000 POS agents and has processed billions of transactions since it was founded in 2015.
The new Visa’s investment will further help Moniepoint expand its services and deepen financial inclusion on a continent that still has a comparatively low rate of financial services adoption.
Moniepoint will leverage Visa’s Cybersource system to gain better visibility into transactions. Additionally, it plans to integrate with Visa Direct for remittances and money transfers as it looks to expand into markets within and outside Africa.
Speaking on the move, Mr Tosin Eniolorunda, Founder and Group CEO of Moniepoint said, “Visa’s backing is a strong endorsement of our vision to digitize and support African businesses at scale.
“We aim to deepen financial inclusion, enabling SMEs to access the tools and resources they need to thrive in an increasingly digital economy.”
On his part, Mr Andrew Torre, Regional President, Central and Eastern Europe, Middle East and Africa at Visa, noted that, “Moniepoint has built an impressive platform that directly addresses the needs of Africa’s SMEs, a critical segment in enabling economic development.
”By making financial services and digital payments more accessible and efficient, Moniepoint is helping transform how businesses operate in Nigeria and beyond.
“We are excited to support their next phase of growth and innovation,” he added.
By Dipo Olowookere
Efforts are being made by the management of a rapidly growing financial technology (fintech) company,
Bankit Microfinance Bank (MFB), to grow its loan and gaming services.
The firm said this is one of its targets for 2025 to solidify its position as a leading platform for comprehensive, simplified banking activities after it recorded remarkable growth in 2024 with different milestones as a result of its competitive edge and cutting-edge technology.
The digital financial services provider said it was already talking to its various partners on how to ensure customers get more access to credit facilities for different needs.
It said nothing would be spared to revolutionise digital banking in Nigeria, especially with a focus on innovation, customer protection, and financial inclusion.
Last year, Bankit MFB, within its first few weeks of operations, successfully registered over 50,000 users on its platform, a testament to its innovative simple banking approach to digital banking.
This year, the small lender has an ambitious plan to increase this by 900 per cent to a record 500,000 businesses in 2025.
Business Post gathered that in 2024, the financial institution recorded impressive transaction values, exceeding N100 million, with an impressive 90 per cent transaction success rate.
Since joining the business, it has introduced web banking and other innovative banking products, with more in development.
With the financial services sector not immune to fraud, Bankit MFB said it prioritises the protection of customers’ funds, expressing its commitment to diversifying its digital services to enhance customer experience.
Bankit MFB is a financial institution licenced to operate in the country by the Central Bank of Nigeria (CBN), which is dedicated to providing innovative, customer-centric financial solutions to individuals and others.
By Aduragbemi Omiyale
The Central Bank of Nigeria (CBN) will on Tuesday, January 28, 2025, launch a foreign exchange (FX) code designed to boost the integrity of the market.
A statement from the banking sector regulator on Wednesday said the FX code would be unveiled at its headquarters in Abuja next week.
It explained the forex code will serve as a guideline for the ethical conduct of FX dealers in the Nigerian forex landscape.
“The Central Bank of Nigeria has approved the release of the Nigerian Foreign Exchange (FX) Code as a guideline to the banking industry to promote the ethical conduct of Authorised Dealers in the Nigerian Foreign Exchange Market.
“The bank will formally launch the code at the CBN Head Office Auditorium, Abuja, on Tuesday, January 28, 2025,” the statement read.
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