Nigerian banks believe the worst is behind the sector and asset quality may improve as the year progresses.
London-based Exotix Capital Limited stated this in a report as part of its feedback on Nigerian banks, after a recent meeting its staff had with operators in the sector.
It also stated that provisions against loans to the power sector and against 9Mobile exposures may rise at some banks.
According to the Exotix Capital report made available to THISDAY, foreign exchange (FX) liquidity in Nigeria has clearly improved, stating that on a previous investor trip, questions about FX liquidity came up very frequently in their discussions.
This, it, however pointed out was not the case this time, saying the strategies put in place by the Central Bank of Nigeria (CBN) appeared to have worked.
â€œWe think we may see more lenders adjust the exchange rate used in reporting results, as Fidelity Bank did in third quarter (Q3) 2017.
â€œSuch adjustments could impact capital and other metrics, but we think the banks are in a better position to deal with these adjustments now, than some were before,â€ it added.
According to the report, growth in the Nigerian banking sector would largely be driven by digital banking and government programs.
It stated that lenders will continue to invest in their digital platforms, de-emphasising traditional â€˜bricks and mortarâ€™ banking.
â€œThe investment is seen as essential to attract the ever-growing young population, and to defray potential competition from outside the banking sector (from telecoms companies, for example).
â€œIn the short term, this may lead to higher costs, but banks generally believe the investments will prove worthwhile over time.
â€œLoan growth is expected to improve this year, potentially driven by government-sponsored programs such as the anchor borrowersâ€™ programme (which covers agriculture), and by a potential increase in infrastructure and other spending ahead of the 2019 elections,â€ it stated.
Exotix Capital however pointed out that it wasnâ€™t expecting significant, above-inflation loan growth though â€“ despite the fall in yields, capital and tax considerations, saying it still makes sense for banks to invest in government securities.
â€œOverall, there has been a marked improvement in sentiment versus a year ago (though, even then, the banks were navigating FX related and other challenges better than most had thought).
â€œThere is a concern that militant activity in the Niger Delta could intensify in the run up to the elections, although most believe that the government is likely to placate the demands of these militants to ensure that production is not disrupted.