22 November 2012

Nigeria: Fitch - Sharp Drop in Loan Growth, Positive for Nigerian Banks

The marked slowdown in loan growth in the banking sector reduces the pressure on asset quality and capital, Fitch Ratings said.

The rating agency argued that a more pedestrian pace of credit origination would help the banks avoid asset-quality problems and places less strain on capital.

But other analysts said the slow-down on credit to the real economy may have been responsible for the retarded growth in Gross Domestic Product (GDP) in the third quarter.

Chief Executive Officer of Financial Derivatives Company (FDC) Limited,Bismarck Rewane, said the fact that leading economic indicators have remained positive for two months and the GDP growth figure for third quarter came in lower than the previous year at 6.48 per cent, sends mixed signals on the direction of the Nigerian economy.

His worry is that in spite of the fact that banks are shying away from lending, the government is resolute in its pursuit for fiscal prudence as reiterated by the federal minister of finance.

Fitch Ratings however said it expects loan growth to be subdued until the second half of 2013, as the market adjusts to the higher interest rates following the expiration of the interbank guarantee from the Central Bank of Nigeria (CBN) last year.

It said the higher interest rates reflect heightened lending risks in the inter-bank market and greater competition for funds. The 91-day Nigerian Treasury Bill (NTB) yield jumped to between 13 percent and 16 per cent range in October 2011, having traded below 10 per cent during the previous 12 months.

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