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Moody’s: Nigerian, S’A banks to face acute challenges

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Nigerian bank customers are repricing loans after the central bank reduced its benchmark rate to the lowest since January 2016

 

Financial analyst, Moody’s, has projected that the incoming year will pose difficulties for African banking sector as the negative outlook persists with Nigerian and South African institutions facing acute macro challenges.

 

Moody’s in a report released on Sunday also said loan quality and liquidity would be the main issues for Angolan and Tunisian banks, respectively.

 

According to tge Moody’s Investors Service report, the outlook for African banks will remain negative into 2021 amid difficult operating conditions and sovereign pressures straining banks’ credit profiles.

 

Loan quality, profitability, and foreign currency liquidity will be the main stress points next year for banks, although stable funding and capital could limit the impact.

 

Difficult operating conditions are expected to persist for African sovereigns, with the re sulting pressures also weighing on banks’ credit profiles. The economic slowdown will hamper banks’ performance, while the governments’ ability to provide support remains impaired.

 

Furthermore, banks will remain heavily invested in government securities, which further reinforces the close credit linkages between banks and their respective sovereigns.

 

“Our outlook for African banks remains negative as we head into 2021, with the difficult operating conditions and banks’ close links to their sovereigns being the key driving factors,” says Constantinos Kypreos, Senior Vice President at Moody’s Investors Service.

 

“Heading into next year, we expect nonperforming loans (NPLs) to potentially double from 2019 levels as payment holidays expire, while increased provisioning needs, reduced business generation, and margin pressure will erode banks’ profitability,” the added.

 

East African and Francophone West African banks are pandemic that’s putting Nigerian bank earnings at risk but that competition for customers in the recession-hit economy was driving interest rates on loans lower.

 

It pointed out that customers were repricing loans after the central bank reduced its benchmark rate to the lowest since January 2016 and injected 3.5 trillion naira ($9 billion) of stimulus to support growth. Africa’s largest economy has been hard hit by lockdowns to contain the coronavirus outbreak and lower oil prices.

 

According to Bloomberg, Nigerian lenders are contending with dollar shortages that dried up foreign investment inflows, a surge in provisions for doubtful debts and unpredictable regulations that very often come at their expense.

 

Quoting Fitch Ratings analysts including Mahin Dissanayake, it noted further that impaired loans could increase to between 10 per cent and 12 per cent of total credit by the end of next year, levels last seen in 2018.

 

The expiry of relief measures might cause credit losses to jump, which may limit loans growth to 10 per cent next year compared with 20 per cent in 2019.

 

Fitch estimates the economy will shrink three per cent this year and expand 1.3 per cent in 2021.

 

 

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