Deposit money banks (DMBs) in the country are expected to take a big hit to revenue and face rising borrowing costs this year as Central Bank of Nigeria (CBN) measures to support the naira currency squeeze lenders already hit by fallout from coronavirus and the oil price shock,
Reuters reported analysts as saying yesterday. Banks in Africa’s largest economy – a mainstay for equity and fixed income frontier market investors – have learned to navigate challenges in a country that has long struggled with dollar shortages and mul-tiple exchange rates.
But the prospect of anaemic growth, dwindling oil revenues, declining remittances and dollar shortages exacerbated by the CBN’s latest action aimed at curbing naira liquidity and currency speculation are putting pressure on lending by banks and the quality of existing assets.
The apex bank has sucked as much as N900 billion out of the local banking system since raising the cash reserve ratio (CRR) by 5% to 27.5 per cent in January, according to analysts’ calculations.
“General sentiments in the markets is that CRR debits are carried out quite close to FX auctions to prevent the banks from presenting large ticket FX demands at auctions,” said Nkemdilim Nwadialor at Tellimer Capital.
Those debits also hamper wider lending, going against central bank measures of lowering banks’ loan to deposit ratios, she said. Central bank data showed credit to the private sector in April dropped by nearly two-thirds from end-2019.
“Banks are dealing with slow growth, fall in lending, a lack of forex in the market and asset quality issues,” said Mahin Dissanayake, senior director EMEA bank ratings at Fitch.
He expects banks’ revenues to drop at least 20 per cent this year, though he did not expect any to make a loss