Crystallisation of asset quality risk still a threat to Nigeria’s banking sector-Afrinvest

Sam Nzeh

Afrinvest (West Africa) Limited says the outlook of Nigeria’s banking sector for the rest of 2017 and 2018 remains positive.

The firm, however, cautioned that crystallisation of asset quality risk still poses a threat to the sector, given that the economy is still recovering from a recession and banks loan book is heavily skilled to high risk sectors –
Upstream Oil & Gas, Manufacturing, General Commerce and Power sectors.

This is part of the highpoints of the 2017 Nigerian Banking Sector Report by the investment research firm.

The report titled, ‘Nigeria Reopens for Business’, is to be launched Monday, October 23, 2017 at the London Stock Exchange, with the Governor of Central Bank of Nigeria, Mr. Godwin Emefiele, as special Guest of Honour.

Speaking with newsmen at a pre-launch news briefing in Lagos ahead of today, Group Managing Director of Afrinvest (West Africa) Limited, Mr. Ike Chioke, noted that despite forward guidance of banks to keep credit expansion minimal in 2017, the exposure of pre-existing loans to ‘high risk sectors’ will continue to pressure asset quality of banks in the rest of 2017.

He, however, said the firm expects asset quality metrics of banks to improve in the remaining part of 2017 against the backdrop of steps being taken to restructure loans to challenged sectors as well as some of the noticeable improvements in the General Commerce and Manufacturing sectors which have been buoyed by developments in the foreign exchange market.

Afrinvest in the report also stated that it expects the Banking industry gross earnings to remain buoyed by higher interest income on account of the high interest rate environment as well as improved non-interest income from trading inflows as well as fees and commission.

On nominal expansion in loans, the firm in the report noted that although forward guidance from majority of the banks in the country indicates the reluctance to extend credit, it believes that the any move to unify the FX market will lead to a nominal expansion in loans, given the proportion of foreign currency loans.

On the Economic Recovery & Growth Plan (ERGP) of the Federal Government, Chioke said though ERGP appears to have captured all the challenging macroeconomic areas with comprehensive plans on how to address them, the impact of the plan in the short to medium term will be based on the extent to which implementation is carried out.

He said: “For the economy to achieve sustainable growth, we believe government must be committed to monitoring and evaluating the implementation of the plan”.

The Afrinvest boss said it is expedient that the structural changes needed to revamp the nation’s economy and place it on a sustainable growth path are continuous and proactive to build resilience against commodity price shocks.