4 April 2013

Nigeria: Standard & Poors - Nigerian Banks to Record Increased Loan Losses Next Year

Standard & Poor's (S&P) Wednesday predicted that Nigerian banks may report increased loan losses from next year amid anticipated growth in lending.

Bloomberg quoted S&P's Johannesburg-based analyst, Matthew Pirnie, to have forecast that the Nigerian banking industry would record between 20 and 30 per cent rise in loans and deposits this year due to foreign exchange and non-oil industry lending.

"We expect increased losses in 2014 to 2015. We tend to see quite short credit cycles in Nigeria," he added.

Loan book diversification is happening "slowly" as there are unknown risks to lending in areas such as agriculture, said Pirnie.

"Lending is still to a narrow group of large corporates with banks holding many of the same names in their portfolios," he said.

Lenders had "muted" credit growth last year of about 12 per cent as they pushed down ratios of non-performing loans, he said.

Nigerian banks are currently releasing their 2012 full year results that have been largely positive. S&P rates six of the nation's banks, which reported higher profits and loan growth last year.

Guaranty Trust Bank Plc, Nigeria's largest lender by market value and rated BB- by S&P, said its profit for 2012 jumped 69 per cent as loans and deposits grew. Zenith Bank Plc, the third-largest and also rated BB- by S&P, said profit for the year more than doubled to N100.6 billion.

The Asset Management Corporation of Nigeria's (AMCON's) cleanup, supported by political stability and economic growth, would spur expansion of the country's banking industry this year, S&P had said in a March 13 report. The benchmark interest rate, held by the central bank at a record high since October 2011, has helped Nigerian lenders make money, said Pirnie.

"Nigerian banks take low-cost short-term deposits and place them into higher yielding loans or government bonds. As interest rates have been high, so have yields on government bonds, allowing for a simple interest arbitrage opportunity," the S&P analyst added.

Nigeria will probably see further acquisitions as AMCON plans to sell three nationalised lenders and as overseas banks look to enter the country's market, Pirnie argued.

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