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    ZENITHBANK   NGZENITHBNK9

ZENITH BANK PLC

(ZENITHBANK)
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Nigerian banks squeezed as central bank shores up naira

07/28/2020 | 07:39am EDT

* Fitch predicts 20% hit to Nigerian bank revenues this year

* Central bank measures exacerbate lending, FX shortage woes

* Economy faces COVID-19, oil price shock double whammy

ABUJA/LONDON, July 28 (Reuters) - Nigeria's banks are expected to take a big hit to revenues and face rising borrowing costs this year as central bank measures to support the naira currency squeeze lenders already hit by fallout from coronavirus and the oil price shock, analysts say.

Banks in Africa's largest economy - a mainstay for equity and fixed income frontier market investors - have learned to navigate challenges in a country that has long struggled with dollar shortages and multiple exchange rates.

But the prospect of anaemic growth, dwindling oil revenues, declining remittances and dollar shortages exacerbated by the central bank's latest action aimed at curbing naira liquidity and currency speculation are putting pressure on lending by banks and the quality of existing assets.

The central bank has sucked as much as 900 billion naira out of the local banking system since raising the cash reserve ratio (CRR) by 5% to 27.5% in January, according to analysts' calculations.

"General sentiment in the markets is that CRR debits are carried out quite close to FX auctions to prevent the banks from presenting large ticket FX demands at auctions," said Nkemdilim Nwadialor at Tellimer Capital.

Those debits also hamper wider lending, going against central bank measures of lowering banks' loan to deposit ratios, she said. Central bank data showed credit to the private sector in April dropped by nearly two-thirds from end-2019.

"Banks are dealing with slow growth, fall in lending, a lack of forex in the market and asset quality issues," said Mahin Dissanayake, senior director EMEA bank ratings at Fitch.

He expects banks' revenues to drop at least 20% this year, though he did not expect any to make a loss.

Some banks have already indicated they expect a hit. In April, mid-tier lender Fidelity Bank warned 2020 profits would drop by 15%.

Bankers said lenders were relying on existing customers to weather the storm as new lending looked risky with the economy expected to tip back into recession.

Fitch predicts impaired loan ratios will rise sharply in 2020 with Nigerian banks the most exposed to stress in the oil sector compared to their peers in emerging markets elsewhere.

Nwadialor at Tellimer expected a "significant pick-up" of non-performing loan ratios from 6.6% in the first quarter to an average of 10% for the full year - double the central bank's benchmark.

Some banks have already announced plans to tackle this. Mid-tier lender FCMB plans to complete a restructuring of half its loan book at the end of April. A central bank policy maker predicted last month that banks would restructure over a third of loans.

Moody's warned in a note that dollar shortages would intensify over the next 12-18 months - a period when 49% of banks' $7 billion foreign-currency borrowing matures, leaving them vulnerable.

Yields on dollar bonds issued by Nigerian banks - a proxy for borrowing costs - have retreated from the peaks scaled in the midst of the oil and coronavirus rout. Yet for lenders such as Zenith Bank, Fidelity Bank or Access Bank, the yields are still at least double the level from mid-March.

"Foreign currency borrowing will be more expensive at a time when banks must refinance almost half of their borrowings," Moody's analysts said.

(Reporting by Chijioke Ohuocha in Abuja and Karin Strohecker in London; Additional reporting by Alexis Akwagyiram in Lagos, editing by Emelia Sithole-Matarise)


© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
ACCESS BANK PLC 0.55% 9.2 End-of-day quote.8.88%
FCMB GROUP PLC 0.33% 3 End-of-day quote.-9.91%
FIDELITY BANK PLC 2.13% 2.4 End-of-day quote.-4.76%
LONDON BRENT OIL -0.82% 75.16 Delayed Quote.46.69%
WTI 0.53% 73.659 Delayed Quote.52.09%
ZENITH BANK PLC 0.41% 24.55 End-of-day quote.-1.01%
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Net income 2021 232 B 565 M 565 M
Net Debt 2021 - - -
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Yield 2021 12,5%
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