Fresh CRISIS ALERT on Nigerian banks

Fitch Ratings has raised fresh alert on the growing loan facilities in the Nigerian Banking sector that might lead to another round of non-performing loan crisis.

Fitch in a newly-published special report on Nigerian banks said the recent rapid credit growth in the banking sector may give rise to weakened asset quality and higher non performing loans if left unchecked.

The report which was released yesterday said the intervention of “Asset Management Corporation of Nigeria, AMCON, during 2010 and 2011 led to a significant reduction in non-performing loans in the Nigerian banking sector.

Fitch Ratings said it believes there has been a marked improvement in banks’ asset quality, with AMCON playing an important role in maintaining stability. Fitch report said “Rapid underlying credit growth of 30-66 per cent was evident in most of the Fitch-rated in 2011 which the agency considers will be a negative credit driver if left unchecked.

“The increase in credit extension follows two years of pedestrian loan growth during Nigeria’s banking crisis. Fitch believes that the extent of the crisis was itself exacerbated by the previous credit boom and expects non-performing loans to begin to tick up as the new lending seasons”.

The report further said “Fitch believes that internal capital generation needs to be addressed in the sector as the generous dividend policies demanded by investors are not conducive to sustainable loan book growth in the medium-term.

The new report considers that many Nigerian banks have thin levels of Fitch Core Capital, which are lower than is appropriate for Nigeria’s difficult operating environment. Sustainable Fitch Core Capital ratios will be a key rating driver for any future positive action on the banks’ viability ratings”.

According to Fitch report “The Nigerian banks are primarily funded by customer deposits which make up at least 80 per cent of most banks’ funding profiles.

Deposits are short-term, with 80-95 per cent of deposits maturing within three months. However, most Fitch-rated banks appear to have relatively stable franchises and liquidity is typically managed on a behavioural basis.

The special report highlights some of the key rating drivers for Nigerian banks in the context of their mostly ‘b’ range viability ratings.