Fitch Findings Highlight Nigerian Banks’ Capital Weakness



Global ratings agency, Fitch Ratings, on Thursday said the latest round of results announced by Nigerian banks highlight capital weakness in the sector.
The London-based ratings agency also said some mid-sized and small banks in the country remain particularly vulnerable to deteriorating asset quality.
Fitch said: “Headline capital adequacy ratios (CARs) are under severe pressure from inflated foreign-currency risk-weighted assets following last year’s devaluation of the naira and increasing impaired loans as the economy struggles with lower oil prices.”
It said several banks are not provisioning fully for their impaired loans, meaning that their underlying capital position is weaker than indicated by their CARs.
The agency said full provisioning would leave some banks close to the minimum regulatory requirement.
Asset Quality
It added that it had analysed the sensitivity of selected banks’ CARs to 50 percent and 100 percent rises in their end-2016 impaired loans, assuming full provisioning. “While most of the larger banks would still meet regulatory capital requirements, several others would fall short in one or both of the stresses.”
Fitch further highlighted that CARs have held up for most of the nine Fitch-rated Nigerian banks that have released 2016 results, helped by strong retained earnings on substantial revaluation gains and foreign-exchange trading income following the naira devaluation.
It, however, believes all banks’ ability to maintain CARs above the regulatory minimum will depend to a large extent on asset quality, which continues to face significant downward pressure given the highly volatile operating environment in Nigeria, which it featured as (B+/Negative).
Heightened Liquidity Risk
The agency also identifies heightened liquidity risk from limited access to foreign currency as a further contributor to pressure at almost all Nigerian banks.
Afrinvest West Africa had stated in its report titled, ‘Nigerian Economy and Financial Market Outlook, 2017’, released earlier in the year: “In the domestic economy, the downtrend which began in 2015 persisted all through the year as macroeconomic indicators worsened. Afrinvest Research had a short-term bearish outlook on the Nigerian economy due to lower commodity prices with a potential to trigger a balance of payment crisis amid weak policy responses.
“Unexpectedly, oil production volumes came under pressure due to disruptions in the Niger Delta, further dragging down government revenues. Accordingly, the economy slid into recession as GDP contracted for three straight quarters (Q1, Q2 and Q3: 2016).
“Also, inflation galloped to double digits from 9.6 percent as at December 2015 to 18.6 percent in December 2016 as the pass through effect from a weaker exchange rate, increase in fuel prices due to price modulation and a hike in electricity tariffs pressured domestic price levels.
“The apex bank resorted to monetary tightening as against its initial dovish stance in December 2015, driving average yields in the fixed income market northwards to compensate investors for higher inflation, attract foreign capital and support liquidity in the foreign exchange market.”
“Our outlook on price levels suggests that inflation will remain in the double- digit region due to potential new shocks from an increase in energy prices (fuel and electricity) and currency devaluation. Nevertheless, we forecast a moderation of inflation to an average of 15.5 percent for the year on account of the high base effect.
“Despite our inflation projection, we believe the CBN will maintain its tight monetary policy stance in 2017 with the benchmark interest rate left unchanged at 14.0 percent in order to continue to attract foreign capital flows which have remained sub-optimal.”
The message deduced from the company is that the country and indeed, the financial industry needed to reform or risk being relegated.
*Banks Plan Unified Database
Meanwhile, in a manner that will be unprecedented, commercial banks in the country have concluded plans to unveil a database that will eliminate or reduce to the barest minimum the rampant cases of fraud in the system.
Managing Director of Access Bank, Herbert Wigwe, disclosed this at a media briefing at the end of the 32nd edition of Bankers’ Committee meeting held on Thursday in Lagos.
Bankers’ Committee is the umbrella body of commercial banks in the country and representatives of the Central Bank of Nigeria (CBN).
Wigwe said the issue was one of the topical issues deliberated upon at the meeting and it was a unanimous decision among members that something drastic needed to be done to stem the tide of fraud that is daily eroding giant strides made by banks in the country.
“The committee deliberated on topical issues that had to do with fraud and one of that is the electronic and card fraud and part of the deliberation was that there is need to create a central depositary which is a database of suspected fraud through the system.
“So once that database is set up and there is suspected case going through the system we can have ways of ensuring there is strong deterrent for people who are known as fraudsters within the system”.
He added that if it is implemented many people will be apprehended.
“What you will see is that the level of fraud which is coming through SMS and bank cards will decease significantly. Very strict measures will be implemented to make sure that people don’t do it and repeat. Offenders are taken out of the banking system to make sure that we sanitise the overall system. It is different from credit default we are talking about fraudsters”.

POSTED BY:OPUOMONI PRIYE
DATE:04/28/2017

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