Nigeria: Agusto Anticipates Drop in Banks' Profitability

10 April 2020

The Founder, Agusto & Co, Mr. Bode Agusto, has predicted that Nigerian banking industry profitability will drop in 2020, following the disruption caused by the COVID-19 pandemic.

Agusto, said this yesterday, during an online presentation titled: "How Will COVID-19 Impact the Economy," that was monitored by THISDAY.

He, also pointed out that some commercial banks would need to raise equity in order to bring their leverage down to tolerable levels.

"The banking industry will continue to deliver sub-optimal returns sub-optimal returns in 2020. In fact, ROE will drop further due to higher loan impairment charges.

"This will continue to impair the valuation of banks listed on the Nigerian Stock Exchange," the former Director General, Budget Office said.

The financial analyst projected a drop in the importation of goods from $49 billion in 2019, to $25 billion in 2020, adding that the focus of imports was likely going to be on necessaries, while import duties on such items may be at concessionary rates.

According to Agusto, currency depreciation would boost naira equivalent of import duties.

"We estimate federal government revenue of N3.2 trillion. We also estimate that the federal government will borrow about N4 trillion, some in foreign currency and others in local currency.

"Historically, the level of borrowing that they have been able to raise historically has been about N3 trillion yearly. So, we are even pushing it further a bit to say that they are going to borrow N4 trillion. "So, we expect an aggregate spending of N7.3 trillion. Let's note that the government has always promised large amount of spending, but they have been able to finance between 60 and 70 per cent of it historically. So, this year is not going to be different.

"But what would they be spending money on? There are some obligatory payments that the government has to make. What are these payments?

"They pay interest on their loans, salaries and pensions of their workers and statutory transfers, that is, what they are obliged by law to transfer to other tiers of government," he explained.

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