Chika Amanze-Nwachuku

Nigerian banks are on the verge of another credit crisis, Citigroup’s Head of Frontier Market Banks and Research, Josh Levin has warned, citing what he described as deteriorating macro conditions in the country.



The economic analyst, in a presentation at the just concluded Citi media summit in London, noted that borrowers, mostly oil and gas industry operators are unable to service the loans obtained from the Nigerian banks due to the plummeting price of oil.

“Nigerian banks have made a lot of loans to the oil and gas industry. About 25 to 30 per cent of the bank loans went to the oil and gas sector. So as the price of the oil plunges, there will be a lot of concerns about the ability of the borrowers to service the loans, because the cash flow of the borrowers goes down.

He said: “The big issue at the moment for banks in Nigeria is Nigerian banks are on the verge of another credit crises. Alternatively, you could say, how well are Nigerian banks positioned to whether the deteriorating macro conditions in the country. The macro environment has really deteriorated over the past 15 months; so, what’s going on, the price of oil has plummeted. Even though Nigeria directly derives only a 15 per cent of its GDP from the oil industry, Nigeria derives roughly 80 per cent of its tax revenue from oil. So the low oil price, certainly negatively impacts the country’s economy.”

He noted that the consequence of this is the slowing loan growth; adding, “when the GDP goes high, loan growth goes high, when the GDP goes down, the loan growth tends to slow.”

According to Levin, most investors are concerned about the growth of Nigeria, a country of over 170 million people and the largest economy in Africa because of the strength of the country’s potential. He said for investors who are focused on the frontier markets, Nigeria tends to be the largest or one of the largest in the bench mark, adding that getting Nigeria right is very important to these investors.
The Citi analysts added: “The big issue right now is credit. Investors are worried that many of the loans by the Nigerian banks are going to go bad and these bad loans will severely impair the banks. So why would investors think the loans are going to go bad? I think the point is the GPD growth, when the GPD growth tends to slow, credits tend to deteriorate. These are what investors are worried about. These are the concerns on the credit side for the Nigerian banks.”

The economic expert, who put the average assets of big Nigerian banks at roughly $12 billion to $15 billion in size, said they are very small when compared to banks in the frontier markets.
He said the deteriorating macroeconomic environment is negatively affecting the Nigeria banks although there is no crisis indication yet in the banks’ second quarter results declared in July. According to him, from the results, the credit metric reported by the banks are not accurate and insisting that the banks are playing games with the numbers.

He said another more worrisome issue is the failure to further devalue the naira. He faulted the position of the Governor of Central Bank of Nigeria that the country has a stable currency; there is no need to further devalue the naira. He said investors view that as incredible and reasoned. He said despite the pronouncement by the CBN governor, investors are waiting for naira devaluation. “So, what the central bank governor has done basically is trying to protect the currency, to defend it at about 200 levels. It is because of these policies that the foreign currency access is restricted.”

On the restriction of foreign exchange access, he said Nigerian businesses need access to US dollars to import the things they need in Nigeria.

He said, for instance, a Nigerian food company needs access to US dollars for importation of items to be used for manufacturing the foods locally in Nig


Source:http://www.nairausd.com/2015/10/nigerian-banks-heading-for-another.html?m=1

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