By Obinna Chima
The outlook for Nigeria’s banking system remains negative, reflecting expectations of rising asset risk and weakening government support capacity over the next 12 to 18 months, Moody’s Investors Service stated in a report published yesterday.
Analyst at Moody’s and the co-author of the report, Peter Mushangwe, predicted that Nigerian banks’ loan quality would weaken in 2021 as coronavirus support measures implemented by the government and central bank last year, including the loan repayment holiday, are unwound.
Mushangwe added: “The negative outlook also captures the weakening capacity of the government of Nigeria to support the country’s banks in case of need, as reflected by the negative outlook on the government’s credit rating; on the other hand, Nigerian banks hold robust capital buffers and foreign-currency shortages will ease.”
According to the report, banks in Africa’s biggest economy face higher asset quality risks as coronavirus support measures are withdrawn amid large single-name and sectoral concentrations and as banks hold a large volume of foreign currency loans.
Furthermore, it stated that banks’ balance sheets are also burdened by large volumes of stage two loans.
The rating agency estimated that between 40 to 45 per cent of banking loans were restructured in 2020, easing pressure on borrowers following the outbreak of the pandemic.
“Still, the government’s capacity to support banks may weaken, as it has an extremely low revenue base, which has remained below 10 per cent of Gross Domestic Product (GDP) since 2015.
“However, the government’s willingness to provide support to large banks in the event of a crisis and to sustain financial stability will remain high,” it maintained.
Also, Moody’s expects economic activity to rebound in Nigeria, with real GDP growth of 2.1 per cent this year and 3.1 per cent in 2022, following a 1.9 per cent contraction in 2020. The current high oil prices, if sustained, would further boost economic activity; however, the economy will remain sensitive to oil price movements, it stated.