Obinna Chima with agency report
Global rating agency, Fitch Ratings has said that the slowdown in loan growth in the Nigerian banking sector reduces the pressure on asset quality and capital.
Fitch stated in a report obtained on Reuters that a more pedestrian pace of credit origination would help Nigerian banks avoid asset-quality problems and places less strain on capital.
It added: “We expect loan growth to be subdued until half year 2013, as the market adjusts to the higher interest rates following the expiration of the interbank guarantee from the Central Bank of Nigeria (CBN) last year. The higher interest rates reflect heightened lending risks in the interbank market and greater competition for funds.”
It stated that although the high interest rates regime had helped in stabilising the currency, it had dampened both loan supply and demand.
Underlying credit, excluding loans sold to the Asset Management Corporation of Nigeria (AMCON) - and write-offs, grew on average by a rapid 44 per cent in 2011 for the banks rated by Fitch. By contrast, the annualised rate this year (based on the first nine months) averaged 16 per cent, below the rate of inflation-adjusted economic growth, the agency added.
It added: “There are two notable outliers among the Fitch-rated banks in Nigeria. First Bank of Nigeria Plc boosted its loan book by an annualised 30 per cent in its third quarter 2012 results, reflecting a strategic shift to move up the risk curve and expand its franchise in the mid-corporate market.
“We believe First Bank's dominant domestic franchise and acceptable levels of capital will support its growth plans. A change in strategy also led Diamond Bank to rapidly expand its credit portfolios, with loans up by 51 per cent on a comparable basis. Diamond's liquidity and capital positions are likely to come under strain as it expands into large corporate lending.”