In a newly-published special report yesterday,Fitch Ratings (FR) said that the recent rapid credit growth in the Nigerian banking sector may give rise to weakened asset quality and higher impairment charges if left unchecked.
“There was a marked improvement in banks’ asset quality during 2011 following the sale of problem loans to the Asset Management Corporation of Nigeria,” said Denzil De Bie, a director in Fitch’s Financial Institutions team.
“However, rapid underlying credit growth of 30 to 66 per cent was evident in most of the Fitch-rated banks in 2011 which the agency considers will be a negative credit driver if it continues,”? De Bie added.
The reported rise in credit is coming amidst other reports that lending activities to the real sector was nothing to write home about.
Analysts are afraid that the much talked about increase in credit may be to the beleaguered down-stream oil sector which plunged most of the banks into problems a few years ago.
John Umokoro, an analyst in Lagos questioned that if credit to the real sector,a major driver of the economy was not improving, where then was the credit going to?
Sam Ohuabunwa, chief executive officer of Neimeth Pharmaceuticals Plc who spoke with LEADERSHIP earlier, noted that the manufacturers no longer take seriously if Cash Reserve Ratio (CRR) was increased or decreased, because the banks have made it difficult for manufacturers to access credit at reasonable rates.
According to him, the cost of lending has ensured that most manufacturers look elsewhere for funding. He lamented the fact that goods manufactured in Nigeria were less competitive than others.
The special report highlighted some of the key rating drivers for Nigerian banks in the context of their mostly ‘b’ range Viability Ratings.
“Fitch considers that many Nigerian banks have thin levels of Fitch Core Capital (FCC), which are lower than appropriate for Nigeria’s difficult operating environment. Sustainable Fitch Core Capital ratios will be a key rating driver for any future positive action on the banks’ Viability Ratings,” said De Bie. In addition, the agency argued that improved efficiency would be a key differentiator for the more successful banks and would support earnings growth and ultimately contribute to better internal capital generation.
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