Lagos – Europen rating agency, Fitch Ratings, on Wednesday
gave Nigerian banks clean bill of health, in spite of the
Central Bank of Nigeria’s (CBN) tight monetary policy and
new banking rules.
The rating agency, which announced its rating on its website,
said that the rating was supported by continuing robust
Fitch also said that it expected the banks’ performance and
growth to moderate over the next 18 months due to CBN’s
actions aimed at protecting the economy and the banking
”The CBN’s stance also shifted towards protecting the
consumer through its revised rules on banking charges
introduced in 2013.
”All these moves, however, led to weaker profitability and
stemmed credit growth in first half of 2014, a trend that is
likely to continue into 2015.
”All Fitch-rated Nigerian banks were profitable in 2013 and
first half of 2014 but saw performance slip,” the agency said
in the statement.
Fitch, however, said that there were a few outliers, typically
the smaller banks, which outperformed the sector.
The agency said that earnings pressure was exacerbated by
high operating costs at most banks due to a higher Asset
Management Corporation of Nigeria (AMCON) levy and
network expansion strategies.
It also added that banks were now seeing some asset quality
deterioration with rising absolute Non Profit Loans (NPLs)
that reflected fast loan growth since 2011.
Fitch said that most banks’ NPL ratios remained below the
five per cent prescribed by the CBN but added that could be
unsustainable in the long-run.
It said that banks were also seeing moderate liquidity
pressure with rising loans and deposit ratios.
The agency said that several banks had successfully tapped
the euro bond market to raise longer-term USD funding to
meet the strong demand for USD loans from major
This, it also said, could expose the banks to foreign
exchange related risks.
”We expect bank capitalisation to come under pressure due
to Basel II implementation in 2014 and proposed new
regulatory capital computation rules.
”As a result, Fitch believes regulatory total capital adequacy
ratios could fall between 200bps-300bps this year.
”Most Fitch-rated banks report Fitch core capital (FCC) and
Basel I regulatory capital ratios in excess of 20 per cent
which is considered a comfortable level given the risks
inherent in Nigeria. ”
Fitch said that the sovereign support drove most Nigerian
banks’ Issuer Default Ratings(IDR).
It also said that out of nine Nigerian banks rated by Fitch on
the international scale, six had long-term IDRs driven by
potential state support.
The agency added that the banks included First Bank of
Nigeria, United Bank for Africa, Diamond Bank, Union Bank,
Fidelity Bank and First City Monument Bank. (NAN)