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Wednesday, March 29, 2023

Coronavirus Loan Losses Hit Nigerian Banks as Profit Growth Slows

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The profits of the largest Nigerian Banks slowed to the lowest level in four years on jump in impairment charges as the coronavirus pandemic stoked uncertainty that hindered customers from paying interest on loans.

That’s a double whammy for an industry operating in a low yield environment and stringent policies by the regulators.

The Half-Year net income of Nigerian listed banks increased by 3.84 percent to N424.11 billion as at June 2020 from N408.41 billion the previous year.

That compares with a jump of 27.45 percent in net income recorded in the 2017 financial year, when yields and short term government securities were high and the introduction of the new foreign exchange regime eased foreign exchange regime liquidity in the market.

Data compiled by MoneyCentral also shows banks net income were up 8.15 percent, and 14.38 percent in 2018 and 2019 financial years respectively. Most banks that have declared a dividend maintained the level at the same as in 2019 or lower to conserve capital.

Coming into 2020, lenders had been struggling with slow growth in interest income and depressed margins, and now they are facing the triple whammy of coronavirus, plunging oil prices, and volatile markets.

The 2014 collapse in crude oil dried up foreign exchange in Africa’s biggest producer of the commodity, resulting in the first recession in 25 years and a currency devaluation. Businesses struggled to make repayments, heaping piles of toxic loans onto the books of lenders.

Nigeria’s largest listed banks saw combined impairment charge on financial assets surge by 119.94 percent to N119.06 billion as at June 2020, the largest expansion in four years, based on data compiled by Money Central. That’s the largest expansion in bad loans over the past seven years.

Analysts expect Nigerian banks to continue to accumulate higher provisions in the next few quarters in anticipation of weaker assets quality. They added that it will continue to weigh on their profitability.

“If people are not making money, then they can’t be able to service their debt. State governments have been given forbearance that will not allow them service loans in two years so that they can meet recurrent expenditure,” Wale Olusi, an analyst at United Capital said by phone.

Nigerian banks have applied to the Central Bank of Nigeria for permission to restructure 33 percent of their loans due to the fallout from the coronavirus pandemic and a slump in oil prices, the regulator said.

Analysts at United Capital in a recent note to clients said that the capacity of the banks to weather the storm is peculiar for each of the banks

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They said that those having the holding company structure such as Stanbic IBTC, FCMB and FBN Holdings are better positioned due to the multiplicity of their revenue streams.

“In the same vein, banks that have a net dollar long position such as Zenith Bank and Guaranty Trust Bank are at an advantage, due to the devaluation and possible further devaluation of the naira,” said the analysts.

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