Nigerian lenders who beat analysts’ expectations in 2014 may not be able to sustain such growth momentum this year, as sluggish loan growth, loss of FX trading revenues, lower net interest margins, the need to raise capital to meet new Basle standards and higher credit losses, combine to dim the outlook on 2015 earnings.

“The Basle II is now the reporting standard and it has a negative impact on growth this year,” said Muyiwa Oni, West Africa bank analyst at Stanbic IBTC, at a conference in Lagos last week.

“The funding costs for banks are set to increase, while the outlook on Net Interest margins (NIM) is also negative. We are concerned about the earnings outlook and quality of earnings,” Oni said.

Nigeria’s Central Bank which requires lenders to have a capital adequacy ratio (CAR) of at least 15 percent, last year removed some assets that count as capital, as it sought to bolster the financial industry’s ability to withstand shocks.

“Going into 2015, we are likely to see more muted loan growth as the pressured macro clime creates a paucity of high quality borrowers,” said Wale Okunrinboye, equity research analyst with ARM Research Limited, a research institute, in an emailed statement to BusinessDay.

“We should now expect the shocks to the macro picture (low oil price and FX weakness) to weigh on asset quality, leading to more proactive provisioning by banks. Broadly the environment speaks to tepid earnings growth over 2015,” said Okunrinboye.

The Central Bank devalued the naira twice in the last quarter of 2014 in order to stabilise the naira and reduce volatility, as oil, which is the nation’s major foreign exchange earner fell by more than 50 percent in 2014.

In November 2014, the Abuja based CBN increased cash reserve requirements (CRR) on private sector funds from 15 percent to 20 percent, while the monetary policy rate (MPR) was moved from 12 percent to 13 percent. CRR for public sector funds remained at 75 percent.

Analysts also say that the ceiling on foreign currency trading will be one of the stumbling blocks to bank growth, as lenders are reducing the level of FX transactions.

“What we clearly see is a very tough half year,” FCMB Chief Executive Officer, Ladi Balogun, who heads the nation’s ninth largest lender by market share, said in an interview last week in Lagos. “It is important that we restore liquidity in the foreign exchange market as quickly as possible.”

“Banks profits are not increasing with the pace of risk weighted assets growth,” said Matthew Pirnie, director of Financial Services Ratings, at S & P.

“We expect credit losses will lead to gradual capital depreciation and earnings deterioration,” Pirnie said.

While some Nigerian lenders have not begun to feel the impact of the headwinds, analysts say it will eventually catch up in future earnings.

The cumulative net income of four tier 1 lenders (Zenith, GTBank, Access and UBA) as reported in their unaudited March 2015 financial statement, increased by 19.07 percent to N84.86 billion from N71.27 billion in the same period of the corresponding year (Q1) 2014.

The cumulative total assets of the four largest banks in Africa largest economy, Nigeria, was N9.03 trillion as at the latest quarter, which represents a 12.1 percent increase from N8.05 trillion recorded in 2014.

http://businessdayonline.com/2015/04/2014-performance-levels-unlikely-for-banks-as-outlook-dims/#.VTioRiFViko

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