Banks Loans Account for 35% of Industry Assets in 2023

Banks Loans Account for 35% of Industry Assets in 2023

Nigerian deposit money banks (DMBs) combined loan portfolio accounted for 35% of their aggregate total assets in the industry at the end of financial year 2023, according to rating note from Fitch.

Despite expectation that the industry asset quality has come under pressures, the global ratings agency maintained positive outlook on the Nigerian banking sector resilience.

According to an update on Nigerian lenders, Fitch said non-performing loan in the industry would rise due to share depreciation of the local currency which has become catalysts for payments defaults.

Analysts explained that the devaluation of the naira has raised borrowing costs across the industry, causing companies to record huge FX losses.

Naira lost 71% post-liberalisation depreciation between June 2023 and mid-March 2024. This boosted some banks FX gain with few recording losses.

In addition, high interest rate environment increased banking net margin, pushing interest income higher above previous years despite relatively low growth in loan book.

Banks increased their appetite in investment securities due to elevated yield on naira denominated fixed interest securities asset in the debt market. With rising stage two loans, local lenders have reduced their lending appetite to the real sector. On the other side, banks have been pushing credit creation towards oil and gas clients.

“The banking sector has been resilient to the impact of the sharp devaluation on the capital adequacy ratio given balance sheet structures, including net long foreign currency positions, which delivered large FX revaluation gains in 2023 and 1Q24”, Fitch Ratings said.

“While we expect the non-performing loan ratio to rise in 2024, loan books are small, accounting for 35% of banking sector assets at the end of 2023 and overall asset quality remains closely aligned with sovereign creditworthiness, given high fixed-income securities and cash reserves at the CBN”, the rating note stated.

Amidst ongoing recapitalisation, Fitch anticipates a marked increase in equity issuance and M&A in the next two years, to comply with a significant increase in paid-in capital requirements.